The life cycle of a company is the process of stages that a company can go through.
All these stages known as the life cycle of a company, from when the company begins its activity until it ceases, are of great importance. Each stage has a series of characteristics that define it and the degree of development of the company. We can establish five differentiated stages.
Next, we will see these phases in detail.
It is the stage where the company begins to operate and the volume of expenses normally exceeds revenues. Here the investment stands out to boost the demand on the part of the clients. Its main characteristics are the following:
- Slow growth Demand from customers is low.
- High prices. The volume of production to achieve economies of scaleis not yet reached. Prices are usually raised to exit as soon as possible from the situation of negative benefits.
- Great investment needs. A powerful investment is required to develop the product and increase customer demand.
- High risk of closing the company. Due to the large initial investment and the slow growth.
Here the growth becomes fast and the company begins to obtain positive benefits. Due in large part to a sharp increase in demand. The fundamental features of this stage are the following:
- Fast growth. Demand increases thanks to the entry of new customers interested in the company’s product.
- Limited competitive price pressure. The threat of new companies entering the sector is at its peak. However, the high growth allows the company to continue growing without competing in prices.
- Price reduction. Economies of scale are achieved that allow prices to fall.
The name growth is not random. This is the phase of the life cycle of a company with more progression.
Here the benefits become consistent. But the growth of both demand and profit begins to fall due to great competition. The following points stand out:
- Growth slowdown Demand begins to peak, due to the difficulty of finding new customers.
- Strong competition. The fall in demand and growth strengthens the battle between competitors. Strong investment processes are initiated above the demand to defeat the competition.
- Cost reduction. The company will try to reduce costs to survive the harsh competition and continue with the activity.
- Business cessation risk. That strong competition will result in liquidation of companies or merging them.
In the maturity phase, growth becomes almost non-existent. Companies begin to consolidate within the sector. Among the main factors are the following:
- Price stability Companies avoid price wars.
- Slow growth The demand is only for replacement, that is, there is no demand from new customers.
- High barriers to entada. Due to the structure of low costs and brand power that companies in the sector have.
Stage of decline
In this phase of a company’s life cycle, the growth in demand and profits is negative. Where the creation of substitute products or changes in consumer preferences would be the cause.
Companies will initiate a price reduction to try to boost demand. What will result in a price war in the sector, and therefore, a new powerful competition. Translating into some companies cease business and others merge.