Business life-cycle and related phases
The business life cycle is the course of events that brings a new product or service into existence and follows its growth to its maturity and achievement of critical mass, until, eventually, its decline. There is no single definition and description of the life cycle stages, which can often be overlapping or present common elements. Conventionally, they can be summarized as follows:
– Seed / Pre-seed: the new business activity is being defined and is not yet formalized, or even not yet fully formed in the entrepreneur’s mind. This phase can refer to projects where only an idea or a prototype of the product or service in question exists, yet it is not marketable. Even ideas can be funded by investors, typically through the support of friends and family or resources made available by calls, prizes and competitions.
– Start-up: the company is legally formed and has started its operations, but can still have limited operations and/or losses due to insufficient revenues to cover fixed costs. At this stage, the product or service is often already tested on a small number of customers, for example in a restricted geographical area. Typically Start-upattract investments from venture capital funds.
– Early stage: at a later stage of the startup, the production and commercial activity is fully started, although sometimes on a reduced scale. Early stage is sometimes identified as the phase in which the company achieves an economic break-even. Often the border betweenstart up and early stage is labile and the latter can identify companies in seed or early stage. Typically early stage attract venture capital and some private equity funds. privaty equity funds.
– Maturity: the company has reached a scale where it typically generates positive cash flows, which can, for example, self-finance the company’s growth, repay any debt, or pay dividends toshareholders. Mature companies typically attract investments from private equity fundsor other categories of investors with a lower risk appetite than venture capital.
– Expansion: Mature companies typically attract investments from private equity funds or other categories of investors with a lower risk appetite than venture capital. Some companies can also decide to go public thought an IPO to support their growth. Mature companies typically attract investments from private equity fundsor other categories of investors with a lower risk appetite than venture capital.
– Turnaround: the turnaround phase refers usually to extraordinary circumstances, such as a radical change in the strategy or business model of a mature company that needs to be financed, or a situation of instability that needs to be solved. Some private equity funds make investments in companies undergoing turnaround or restructuring.