The Business Life Cycle

The 4 stages

Establishment:

• Customers are unfamilliar with the products

• retailers are hesitant to stock the products

• takes time to establish the product/s and build a customer base

• expenses > revenue (cost>profit)

• often have negative profits

• a business will lose more money (than they make, if any)

Challenges:

• Establishment costs are high but due to the low/no sales it means that the business will have small revenue.

• Lack of finance

• Poor business planning

• hard to break into market

• ineffective marketing strategies

• hard to build a reputation

• competing with established brands and products

Growth:

• sees a rapid increase in sales, revenue, profit

• pressure on resource, particularly cash and labour

• competitiors are attracted by increase in sales

• lack of cash problems develop

• increasing customer base

• cost decreases as resources are used more efficiently

• merging, intergration, and acquisitions become viable opportunities

Challenges:

• Business may expand to rapidly

• may be unexperienced in owning a larger business

• more finance is now needed to sustain growth

• Direction may be lost and business may move away from core activity

Maturity:

• costs and cash flow begin to level off (plateaus)

• the market for the product is now saturated

• business has time to employ professional managers

• focus on remaining competitive

• sales will peak and eventually slow down (plateau, level out)

• good relationship with customers: loyalty, reliability

• product differentiation and diversification

Challenges:

• fewer new customers, sales no longer increase and profit remains steady

• market share decreases

• expenses must be reduced to maximise profit

• may be shortage in finances

Post-maturity:

• falling sales and los o market share

• cash flow problems emerge

• business starts to decline

• renewal, steady, or cessation (decline)

Challenges:

• ecreasing profits

• harder to borrow money

• unsold stock loses value

• employees may seek better career opportunties

• may face cessation

KEY TERMS:

Merger; when the owner of two seperate business agree to combine thier resources to form a new organisation (e.g. Rudd Ltd Electronics + Kohler Ltd Engineering→ Rudd Kohler Ltd.)

Acquisition; when one business takes control of another business by purchasing a controlling interest in it (e.g. McCulloch Feedlots Ltd, Winston Haulage Ltd→ McCulloch Feedlots Ltd + McCulloch Haulage Ltd)

Vertical Integration; aimes to secure resource supply chains, service providers, or control of distribution of business by purchasing a controllling interest in it.

• Backward vertical: when a business intergrates with one of its supplies → bakery acquiring a wheat farm

• Forward vertical: when a business intergrates with a firm it sells to → bakery mreges with a supermarket chain that sells its bread.

• Horizontal: when a business acquires or merges with another firm that makes/sells similar products → a bakery merges/acquires another bakery

• Diversitification/Congolemerate: when a business acquires or merges with another unrelated business → a bakery merges/acquires a furniture manufacturing company

Product differentiation; focusing on unique, distinctive characteristics or featues of a product to set it above competing products. Company buys into a new industry to mitigate risk and loss.

(e.g. wine manufacture purchases a shoe shop)

Product diversification; epanding orgiinal market for a product byu altering it to suit other consumer needs (e.g. new flavoured tim tams)

Renewal; increase in sales/profits, new products developed and expansion of business through merger/takeover or acquisition

Decline/Cessation; business is losing business because the competition is more aggressive, they fail to respond to external infleunces, lost touch with target market, and have declining sales/profits.