Understanding the stages of a business life cycle

A company’s purpose and its life cycle journey should be seen as a source of inspiration for business leaders. Understanding this journey can provide valuable insight into how to successfully scale and manage the growth of a business.

The life cycle of a company begins with the formation stage, when an entrepreneur or group of entrepreneurs come together to create a business. During this stage, the founders should be focusing on developing an effective business model and creating strategic partnerships that will help them succeed in their market.

Next is the launch stage, when the company begins selling a product or service to customers. This is often a time of great excitement as well as uncertainty; it’s important for business leaders to manage their expectations and be prepared for potential pitfalls.

The growth stage is where many businesses will start to see the fruits of their labor. The company may need additional capital, resources, and personnel in order to keep up with demand. It’s essential that business leaders stay agile during this time and are willing to make changes quickly in order to remain competitive.

The maturity stage is when a company has established itself in its industry and is experiencing steady growth. At this point, the business may choose to shift focus from growth to profitability, or continue to expand into new markets.

Finally, the decline stage happens when a company’s products or services are no longer in demand. Business leaders must be prepared to make tough decisions like restructuring, exiting markets, or even shutting down operations entirely.

It is the job of business leaders to understand and navigate the life cycle of a company. By understanding each stage thoroughly, you can better prepare for potential challenges and opportunities that may arise during its journey. With the proper knowledge and strategy, a business can stay on track to achieving its goals and long-term success.

Fundraising and M&A

Every company, at one time or another, will face a decision about whether to raise money through equity financing or to pursue a merger or acquisition (M&A) transaction. Additionally, the chances are that there will be a significant shareholder exit at some point during your business life cycle.

These events are illustrated in the following diagram:

As the business leader, at some point in a company’s life cycle you will be heavily involved in identifying and scrutinizing potential opportunities to create shareholder liquidity events and maximize value for your owners. By being proactive and evaluating these opportunities, you can help your company make the best fundraising and M&A decisions to grow and expand.

This can be a daunting task, but with the right tools and resources, you can support your leadership by playing a key role in the decision-making process.

When planning for a fundraising or M&A transaction, most business leaders focus on their responsibilities during a live transaction process. However, research suggests that around 80% of the work actually takes place before a deal process has even begun.

The starting point for most activities will be at board level. This will involve a series of discussions to debate and finalize the strategic business plan, which typically covers around 3-5 years.

The business leader plays a key role in these discussions, including:

1. Contributing ideas towards the optimal strategy for your company.
2. Influencing decisions and challenging views.
3. Modelling the financial impact of any potential scenarios.

Your financial model must determine whether you need to raise additional funds to deliver your business plan. Your plan should outline your M&A aspirations towards making acquisitions and how these fit into your strategic objectives. You may also wish to specify your timeline and aspirations regarding a future shareholder exit event.

Planning for a Successful Exit Process

Delivering a successful exit represents a huge achievement for any business leader and provides a significant career milestone. Despite this, results suggest that 40% do not start preparing until they are within one year of their target exit date. This is unlikely to provide sufficient time to cover all the necessary activities and to deliver the positive impact of these initiatives within your financial performance.

The following table outlines the exit readiness activities that business leaders typically focus on during the three years prior to a planned exit:

Companies need to start planning well in advance of any targeted exit date and should always be ready for an unexpected lucrative approach from a potential buyer. Experienced leaders consider preparing for an exit immediately after fundraising, which creates plenty of time to build the data room and prepare for a due diligence process.

Start by identifying your company’s unique selling points, understanding why somebody is likely to buy you and maximizing your focus on delivering the corresponding KPIs. You should also determine whether to appoint an advisor and start working with them early on well in advance of commencing a live deal process.