LE5 Business Life Cycle

BUSINESS LIFE
CIRCLE
Introduction
Every business, whether it’s big or small, goes through the 4 stages of business growth:
• Startup
• Growth
• Maturity
• Renewal or decline
 Each of the stages of the business life cycle have unique challenges and businesses need to find
creative approaches to overcome them.
 By understanding each of the growth stages, you can find out where your business currently is in
the cycle. This help you to plan for the future and create an appropriate business growth strategy.
Gross Domestic Product (GDP)
 Def. The total value, in dollars, of all final goods and services produced within the
nation each year
What does the GDP tell us?

 If the GDP is larger than last year the economy is expanding (getting bigger)
 If the GDP is smaller, the economy is shrinking (getting smaller)
Gross Domestic Product (GDP)
It is The total value, in dollars, of all final goods and services produced
within the nation each year
What does the GDP tell us?
 If the GDP is larger than last year the economy is expanding (getting
bigger)
 If the GDP is smaller, the economy is shrinking (getting smaller)
 The Business Cycle allows people to understand the direction the
economy (GDP) is going (growing or shrinking) and plan accordingly.
 The economy follows the Business Cycle regularly.
Business Cycle
Peak
Peak
Trough
Phases of the Business Cycle
Stage 1: Start-Up Business
 In the startup phase, you’re spending most of your time and effort to bring your business idea to
life. You’re likely trying to get the word out about your product or service, while balancing other key
responsibilities. As a startup, it’s not uncommon for you to wear many different hats to get your
business up and running.
To take your business to the next level, you need to make sure your company is efficient and has a
system in place to follow for growth. This means you are :
 Hiring employees
 Knowing how to delegate tasks
 Establishing a creative culture
Stage 2: Growth/Expansion
Your business plan is paying off. Consumers know about your product or service. Your revenue is
increasing. Your business has less turnover. And your market share and customer base are growing.
After being in business for a few years, your company is going through rapid growth.
 Staying focused on your business goals in this stage can be challenging. It’s a good idea to:
 Set goals that let you grow with purpose, so you’re using your resources in the most effective way.
• Maintain capital, because without it, you won’t be able to meet financial obligations.
• Create realistic, accurate forecasts to help drive your goals and stay on track.
Stage 2: Growth/Expansion cont…
 During a period of expansion:
Wages increase
Low unemployment
People are optimistic and spending money
High demand for goods
Businesses are expanding
Easy to get a bank loan
Businesses make profits and stock prices increase
Stage 3: Business Maturity/Peak
 This is the safest and securest phase. It’s a different feeling than the first two stages in
the business life cycle. The startup phase was risky, because you didn’t have an
established product or service. And in the growth stage, you had to manage how your
business grew so it still accomplished its goals.
 Mature businesses have more brand awareness with consumers, and a strong presence
in their target market. It’s unlikely a startup or business with less experience can take
over your company’s position.
 So, with a strong cash flow and the ability to quickly address issues that may come up,
what makes the maturity stage challenging is the biggest risks of staying stagnant.
 As a mature business, your company has a chance to expand. You can increase your
market penetration to ensure a larger percentage of customers are using your product or
service. Or you may want to develop new products to tap into a new market. For some
business owners, the maturity stage may bring thoughts to sell, merge or buy another
company to expand.
Stage 3: Business Maturity/Peak cont…
 While every business wants to avoid a decline, it’s bound to happen to almost everyone. This can
happen for a variety of reasons, such as:
➢ Not pursuing opportunities to expand during the maturity stage
➢ Changes to the industry affecting customer demand
➢ Competing businesses having better products or services
➢ Not reacting to technology updates or advances
 If your business has seen several years of dropped revenue, you’re in a decline. That’s why it’s
important to regularly look at your finances.
 When your business is in this stage of the life cycle, you have two choices: sell or reinvest. If you
decide to sell, you’ll want to work with the right people to make sure you’re following state and
federal finance laws.
 Reinvesting in your company can result in its renewal. Ideally, you want to start this process
before your business is in a decline. For example, if you notice there’s a change in the industry,
modify your strategy. If your business is already in a decline and you decide to reinvest, you’ll want
to quickly find out how you can address the new needs of your target market.
Stage 4: Declining/Contraction cont…
While every business wants to avoid a decline, it’s bound to happen to almost everyone. This can happen for a variety of
reasons, such as:
 Not pursuing opportunities to expand during the maturity stage
 Changes to the industry affecting customer demand
 Competing businesses having better products or services
 Not reacting to technology updates or advances
 If your business has seen several years of dropped revenue, you’re in a decline. It’s important to regularly look at your
finances.
 When your business is in this stage of the life cycle, you have two choices: sell or reinvest. If you decide to sell, you’ll
want to work with the right people to make sure you’re following state and federal finance laws.
 Reinvesting in your company can result in its renewal. Ideally, you want to start this process before your business is in
a decline. For example, if you notice there’s a change in the industry, modify your strategy. If your business is already
in a decline and you decide to reinvest, you’ll want to quickly find out how you can address the new needs of your
target market.
Stage 4: Declining/Contraction
 During a period of contraction:

 Businesses cut back production and layoff people
 Unemployment increases
 Number of jobs decline
 People are pessimistic (negative) and stop spending money
 Banks stop lending money
Trough
 When the economic cycle reaches a trough:
 Economy “bottoms-out” (reaches lowest point)
 High unemployment and low spending
 Stock prices drop
But, when we hit bottom, no where to go but up!
UNLESS….
Recession/Depression
 A prolonged contraction is called a recession (contraction for over 6 months)
 A recession of more than one year is called a depression

What keeps the Business Cycle Going?
4 variables cause changes in the Business Cycle:
1. Business Investment
When the economy is expanding, sales and profit keep rising, so companies invest in new plants and
equipment, creating new jobs and more expansion. In contraction, the opposite is true
2. Interest Rates and Credit
Low interest rates, companies make new investments, adding jobs. When interest rates climb,
investment dries up and less job growth
3. Consumer Expectations
Forecasts of an expanding economy fuels more spending, while fear of a recession decreases
consumer spending
4. External Shocks
External Shocks, such as disruptions of the oil supply, wars, or natural disasters greatly influence the
output of the economy
Challenges faced by Small Businesses
Lack of credit history
Limit of personal assets (impact when starting, financing,
growing)
Lack of business experience (client’s cooking = a great
restaurant?)
Lack of industry knowledge (challenges to start and grow?)
Lack of network/connections and understanding of the
economic environment (Counselor’s role)
High cost of goods
Lack of customers
Lack of cash
Lack of qualified employees
Lack of time
Challenges faced by Small Businesses cont…
 Lack of efficiency
 Lack of commitment
 Inability to admit making mistakes
 Failure to match their abilities, interests, personalities, and needs with needs
of their business ventures.
 Lack of planning.
 Poor marketing and market research (which resulted in failure to correctly
identify the target market).
 Poor financial planning and money mismanagement.
 Attempting too many tasks at once.
 Failure to set and revise goals (to reflect changing nature of the business.)
 Personal reasons (illness, accident).
Business development strategies for
entrepreneurs
 Financial contributions
 Supporting local causes
 Understand your competitive landscape.
 Choose effective KPIs.
 Develop long-term customer relationships.
 Implement customer feedback.
 Keep your website content and user interface fresh.
 Speed up your response time.
 Leverage a sales plan to identify areas of growth.
 Implement a social listening strategy.
 Sponsor industry organizations, conferences, and events.
Functions of Management of a Small Business
Owner
 Direct and control the company
 Manage resources (equipment, capital, labor, and all input resources and
materials)
 Manage cash flow and investments
 Deal with internal and external forces and mitigate their impact in the company
 Responsible for the performance of the company
 Manage efficiently by controlling wastes and expenses
 Communicate with customers, suppliers, and employees on behalf of the
company
 Carry on requirements, rules and regulations of the business industry
 Ensure that the company meets the law
 Understand the legal aspect of the business
Some Common Reasons for Entrepreneurial Failure
✓ Lack of commitment
✓ Inability to admit making mistakes
✓ Failure to match their abilities, interests, personalities, and needs with needs of their
business ventures.
✓ Lack of planning.
✓ Poor marketing and market research (which resulted in failure to correctly identify the
target market).
✓ Poor financial planning and money mismanagement.
✓ Attempting too many tasks at once.
✓ Failure to set and revise goals (to reflect changing nature of the business.)
✓ Personal reasons (illness, accident).
Practicing questions
 What phase of the business cycle do wages go up?

 Expansion
 What phase of the business cycle do wages go down?

 Contraction
Practicing questions cont…
 When are wages at their highest?

 Peak
 When are wages at their lowest?

 Trough
 When will borrowing decrease?

 Contraction
 When will borrowing increase?

 Expansion
 When will borrowing be at it’s lowest?

 Trough
 When will unemployment be at its lowest?
 Peak
 When will business profits be the highest?

 Peak
 When should you look for a new job?

 Expansion
 A firm should look to expand its workforce during a contraction phase. True or False?
 The given statement is False. During contraction, the supply of goods is more than the
demand. Increasing the workforce will only add to the already high production cost. The
workforce may be added during the Expansion phase to keep up with demand and
increase profitability.

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BUSINESS LIFE

What does the GDP tell us?

 During a period of expansion:

 Changes to the industry affecting customer demand

 Competing businesses having better products or services

 Not reacting to technology updates or advances

 During a period of contraction:

 A prolonged contraction is called a recession (contraction for over 6 months)

 A recession of more than one year is called a depression

 What phase of the business cycle do wages go up?

 What phase of the business cycle do wages go down?

 When are wages at their highest?

 When are wages at their lowest?

 When will borrowing decrease?

 When will borrowing increase?

 When will borrowing be at it’s lowest?

 When will business profits be the highest?

 When should you look for a new job?

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