Chapter Four: Business Life cycles and How to Manage Growth

A business’s success is also often governed by the success of the industry in which the
entrepreneur has decided that the business will settle. The economic trend affects industries in a
dissimilar manner; some are worse hit than others and as the entrepreneur chooses a business
opportunity, this is one thing he may be wise enough not to ignore. As the entrepreneur plans for
the future of the business, he needs to bear in mind that certain things may be beyond his control
while others he may be in a position to control. To delve more into the life cycle of a business,
we will begin by looking at the growth curve of an industry.
Industries are born, just like people. They grow, mature and eventually die. The power of
growth of an industry is very important to an entrepreneur since it has a lot of impact on the
success of the business. Some of the factors that may lead to the collapse of an industry may well
be beyond the control of the entrepreneur. For instance, the entrepreneur has no control over the
country’s currency and so if its value falls, this may have negative impact on the tourism sector.
A firm in this industry may have tough times ahead. Research shows that most firms do well in
industries that are just starting. Many factors can be attributed to this;

i) Ease of entry
Because the number of entrepreneurs willing to invest in the less known industry is small, those
that do, stand to settle in with relative ease if the market response is positive. Barriers that exist
in established industries are fewer in an emerging industry and the firm is thus able to set its own
bench marks as it tries to do what few have tried to do before.
ii) Less competition
Given the fact that there are few entrants in the industry, the entrepreneur has fewer headaches
thinking more of the growth of his venture than what his would be competitors are doing.
iii) High level of innovation
Because he wants to create a name for the business, the entrepreneur with a clear vision for his
business is in a good position to try and invest more on research and development as he is
convinced that what he is doing will yield good returns. He is well poised to come up with even
better ways of carrying on the venture.

The phases in the growth of a firm/business life cycle

Business life cycles refers to the phases that a business passes from the time the idea is formed in
the entrepreneur’s mind to the time business' rolls and expands or even declines. If not well
managed, the growth of a business can have serious repercussions. An entrepreneur needs to
assess his environment against the growth of his business and ensure that the growth of the firm
is also taking into account external factors, which may well be beyond his control. Every
entrepreneur wants to see his business grow. That is the short term and long-term vision for
every firm. The growth rate will also give an impression of how the firm’s product or service is
meeting customers’ demands. A product’s life cycle from inception to eventual decline can tell
how a firm will fair both in the short term and the long term.

Many businesses go through six stages in their life. Others may go through five stages:
1. Idea Generation stage
This is the preliminary stage for the business. Here, the entrepreneur does a lot of ground work to
access the viability of the venture he is about to get into. At this stage, the entrepreneur is
expected to come up with the business idea. Several needs may require to be fulfilled but the
entrepreneur may not meet all of them; it becomes necessary at this stage to select the most
viable business idea from the many available.
This stage may involve creativity and assessment of various ideas. It is at this stage that an
entrepreneur decides on the business mission, scope and direction. This mean, an entrepreneur
gives the prospective business a purpose. Some purposes may include provision of quality goods
and services and to make profit
He will carry out due diligence to ensure he has taken all important factors into recount setting
off the business. He will incur expenses to execute some of these important activities. He may
for instance require the services of a legal representative to acquire land. He may also hire the
services of a surveyor if he wants to build his own premise, if he will hire personnel to assist in
running the business, he should ensure that he has sufficient funds to pay them for at least 6
months. He may need to get a loan to do this.

2. Start - up stage
Activities at the start up stage may involve preparation of a formal business plan, registration of
the business, sourcing capital, recruiting staff and designing the product. At this stage, business
may also launch the product and sign up with distributors or dealers.
At this stage, the entrepreneur has already set the business up. The business is operational despite
the setbacks that befall all businesses that start up at the initial stages. The entrepreneur realizes
that he may need to make adjustments in order to survive. He may see the need to insure the
property in case he hadn't. He may also realize that he does not need an extra staff hence he may
cut down on that, sales may be slow in picking up, so he may decide to come up with new
marketing strategies, He may see the need to have proper records for tax purposes.

3. Growth stage
At the growth stage of business, common experiences may include:
 Increased sales and profits
 Wider market coverage in terms of geographical regions.
 A growing number of employees
 Variety of products/services
 Increased competition
 Need for additional expenditure.

During this phase, the business will experience rapid growth as customers’ needs become the
main focus for the entrepreneur. It is at this stage that he will realize there is need to gain a
competitive edge in order to make more sales. The entrepreneur at this stage may think seriously
about automating his operations, hiring professionals like accountants, perhaps even expanding
the business. The signs that these requirements are necessary will be felt by the growing need to
meet the increasing and dynamic needs of the customers.

4. Stabilization Stage
 At this stage:
 The business sales and profits stagnate.
 The business may also experience intensified competition.
 There is also market saturation by similar (look alike) products
 Consumers’ indifference to the product
 Sales may decline and consequently profit may decline.
This is the phase that determines whether the business has managed to meet its long-term
objectives and a period to assess how successful the short-term objectives have been met. At this
stage, the entrepreneur is more concerned about corporate governance, issues and how this
impact on customer needs. He will also be concerned with the management of the business in
various departments such as finance, sales and marketing. The entrepreneur will have his sights
on a higher level of competition with other, firms that belong to a higher circle, hence he sees the
need of turning the business into a public limited company in order to compete as such levels.
This model can be applied to the growth or otherwise of a firm. The entrepreneur thus needs to
ensure that the business opportunity he has before him has a road map charted in advance and
based on due diligence. This does not mean that every firm will follow the above model. The
entrepreneur needs to be aware of the possible outcomes.

5. Innovation Stage
Organizations that fail to innovate at stabilization stage are likely to decline. To ensure the firm
comes back to growth, the entrepreneur is required to relook at the ways business has been
conducted. The aim is to undertake activities differently and rescue the firm from decline. It is
expected that innovative strategies would ensure accelerated growth.

Among innovative attempts include:

 Change of management: The aim is to bring new-and better ideas that will ensure the firm is
back to the growth path.
 Re- package the product/ service: This would ensure the market gets the impression of a new
product that is modified and. Better than the former. It is also a strategy of winning customers
back from competitors.
 Change the technology: The aim of new technology is to ensure efficiency in production and
enhance customer service. It is important that the entrepreneur chooses a technology that
matches the type of business he is doing.
 New distribution methods: The firm may also design new distribution methods. Changing the
distribution strategy would ensure customers access their products at the convenient places
especially providing personalized distributions to customers or even ensuring 24-hour service to
customers.
 Advertise and promote differently: The firm may decide go to different regions and promote
its product or services.

6. Decline Stage
This stage is not in the normal plan of business. The entrepreneur does not foresee business
declining at the start- up stage. Some of the experiences at this stage include:
 Drastic fall in sales and profits: This is as a result of customers moving to competitors and in
large numbers. It is also a result of consistent expenditure against limited income.
  Consumer indifference to the product/ service: This means consumers no longer prefer the
product to competing brands. The entrepreneur may experience huge stocks of unsold product.
 Inability to meet bills/ debts as they fall due: This arises from persistent low income or losses
against increased expenditure.
 Key management staffs leave the organizations: This may result-from the organizations
inability to remunerate top managers or provide them ' with adequate facilities for their
performance of various tasks.

Managing growth
The entrepreneur will need to do the following to manage growth:
1. Assess the likely demand for the product
This entails doing a survey in a particular targeted section of the market where very important
variables can be collected. The entrepreneur will need to see whether there have been other
products and services that have been or are still there in the industry.
2. Identify a specific customer need that has been ignored
Even where similar products or services have existed in the industry, the entrepreneur may
identify a specific need that has not been fully met. Here, the entrepreneur will assess whether by
meeting this need, his firm will pull away customers from other firms.

3. Consider the added value to the customer

The entrepreneur will also need to assess whether the customer will experience an added value
by using the new product. This will come out as a result of a survey.
4. Assess the company image enhancement as a result of the new product
The entrepreneur will also be looking at the interest of the firm. Will the introduction of a new
product likely to boost the image of the business and to what extent? With this in mind the
entrepreneur will come up with a clear chart of where he wants his business to be in future and
how it will get there. The business strategy can be looked at in the following ways;
5. Market Penetration
Here, the entrepreneur is asking himself, how can I take up a bigger share of the market? He will
have to think of ways through which he can establish his presence and exert himself through his
product or service. He may have the objective of controlling a certain percentage of the market.
This in itself is a strategy and the entrepreneur will need to devise ways of achieving this. Some
of the means he could use to attain this objective are:
i) Investing on advertisement
ii) Encouraging customers to buy his products through customer incentives for instance special deal
if a sale reaches a certain value, discounts etc.
iii) Offering better customer care
All these may pay off if the results are tangible. This will be realized through increased
revenues and a larger client base.

6. Geographical Expansion
This strategy will be a result of a well thought out plan to introduce a product or a service to a
wide region all at once and capture the entire market in one single attempt. The success or failure
of this move will depend on how much due diligence the entrepreneur will have done. If the
 initial survey tells him that customers from diverse backgrounds and from different walks of life
will respond positively to the new product or service then he has a good chance of succeeding.
7. Product/ Service diversification
This strategy will mitigate against the risk of losing market share when the product reaches the
final stage of its life cycle. As we saw earlier, the lifecycle of a business will necessarily follow
that of the product if there is no backup plan. Through product diversification, the entrepreneur
will ensure that even though the product is squeezed out of the market as a result of fierce
competition, others will still come up to replace it in terms of market share. The entrepreneur
should be careful not to diversify into unrelated products or services. He should choose a product
or a service that can be used instead of the mainstream product or service. At the end of it all, he
should not do away with the original product all together