Business life cycle
Establishment
- High set up costs for fixtures, fittings and stock.
- Difficulty obtaining funds (loans) from banks due to high risk.
- Slow sales growth due to lack of exposure to the market.
- Trouble attracting the right staff.
Challenges at this stage
- Choosing competitive product
- Finding the right legal structure
- Size and location of premises
- Marketing strategies/promotion costs
- Accessing finance to grow business
Growth
- Rapid growth (sales)
- Increased customer awareness
- Diversified product range
- More efficient production
- Cost savings - Economics of sale
- Finance more easily obtainable
- More employees - leads to specialization
Mergers and Takeovers
- A merger occurs when owners of 2 separate businesses agree to combine resources to form one organization.
- A takeover occurs when one business takes control of another business or buys a controlling interest in it.
Challenges
- Maintaining quality as output grows
- Develop systems to evaluate performance
- Managing cash flow as business expands
- Becoming even more efficient as business grows
- Sustaining growth - no complacency.
- Recruiting and delegating tasks to other employees
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Maturity
- Growth slows down significantly
- New competitors may enter the market
- Business reaches its maximum size for its premises
- Management may become stuck or satisfied with current state
- May work on reducing production costs to maintain profits
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Challenges
- Staying responsive to consumer demands
- Staying competitive
- Identifying opportunity for innovation products and services
- Sustaining motivation of management and staff.
- Reducing costs wherever possible
Post Maturity
- Steady state: Maintain sales, remain profitable, no changes to business strategy.
- Renewal: Takes off, expands again. New products, takeover / merger, new markets.
- Decline and Final Closure: loses competitive advantage, products become obsolete, sales and profits decline.
Challenges
- Understanding the changing tastes and needs of consumers. Developing new products.
- Shifting into new or related markets where growth opportunities exist.
- Orienting management and staff towards change, new methods, new structures and procedures.