The business model goes through several different stages throughout its life cycle. These stages are directly reflected in the business as a whole. So, knowing the life cycle of the business model and the requirements of each stage prepares you to make the right decisions for your business.
What is the life cycle of a business model? The business model goes through four stages during its lifetime:
Each stage of the business model requires different strategies and tactics. Experiments confirmed that the main reason companies fail is due to the failure to take into account the requirements of each stage. Therefore, this article will show you the business model life cycle stages step by step, so you can be knowledgeable enough to lead your business. Let’s get started.
What is the business model?
A business model describes the strategies and tactics a company pursues to achieve its goals. It describes how the company creates a product/service, how the company communicates with its customers to provide this service, and how the company makes a profit, etc.
The business model canvas used as a tool to describe the business model as shown in the image below.
Use and Download the Business Model Canvas template here.
To learn more about the business model and how to describe it, you can read the “ How To Describe Your Business Model “ article
For more details on this subject and related topics, we suggest attending the Free Training course How to Build a Startup.
The importance of studying the life cycle of the business model
According to a report by research firm “Genome”, 90% of startups fail primarily because of self-destruction, due to the bad choices their founders make, not because of bad luck or market conditions beyond their control.
Each stage of the business model has its own requirements. Therefore, your understanding of these stages and their requirements helps you make the right decisions and the right choices that fit the stage of the business model.
Understanding your business model’s stage helps you to overcome difficulties because you are aware of the potential problems and obstacles you might face at each stage before you actually move on.
Finally, understanding your business model life cycle is key to ensuring the success of your business and not making the wrong decisions that could lead to your business failing and leaving the market.
Business model life cycle
The business model has four main stages: start-up, growth, maturity, and renewal. The following paragraphs will discuss the nature of these stages and their specific requirements.
You can see that the life cycle of the business model is similar to the life cycle of companies and products. This is because they are closely associated with each other. The business model life cycle dominates companies’ and products’ life cycles.
Start-up stage
The business model at this stage is the founder of the company’s assumptions and guesses. These assumptions are unproven.
Since the initial business model is based on the assumptions and guesses made by the founders of the company, the priorities at this stage are to obtain a business model that is based on facts and reflects the reality of the market. This is done by testing assumptions and adjusting them to market reality. Therefore, this stage is called “searching for business model”.
At this stage, spending should be minimized as much as possible and the focus should be on preparing experiments to test and validate the business model until a suitable business model is obtained.
The most important questions the company is looking for answers to during this stage are:
- How do you produce products?
- Does the product meet customer desire and expectations?
- What is the procedure to get, keep, and grow customers?
- Can you get enough customers to scale-up the business?
This stage has its own tools and methods. One of the most important methods used at this stage is the Lean start-up methodology.
This methodology aims at getting to the right business model as quickly as possible and at the lowest cost. For more information on the Lean start-up methodology, you can refer to the “How Startup Works and How to Run Startup” article.
Usually, the founders of companies manage this stage because of their ability to make critical and rapid decisions to build a business model.
Growth stage
When the company obtains the appropriate business model, the startup stage ends, and the quest for growth begins.
You can evaluate your business model if it is suitable or not, by using the business model metrics. To learn more about these metrics, see the “ Business Model Metrics “ article.
The concern of companies in the growth stage is how to obtain adequate funding to reach optimal production levels that make profits.
In the growth stage, the company is looking to expand its customer base and raise the level of production to reach the required production levels.
At this stage, a manager of the company is appointed to build the organizational structure that will be suitable for the growing stage requirements.
The nature of this stage is a rapid transition stage associated with obtaining financing for growth. Companies that do not receive funding may be suspended at this stage until they exit the market.
At this stage, the business model may need minor adjustments to match the size of production and marketing to which the company aspires. These amendments are only in the form of improvements in procedures and the addition of necessary activities.
No substantial changes should be made to the business model because this requires the company to return to the previous stage and conduct the necessary tests to ensure the correctness of these changes.
Maturity stage
The business model at this stage is at its best. It has stabilized the company so that it can overcome most challenges.
At this stage, the company has market experience and has enough profit to continue. Fears of failure and collapse have become a thing of the past.
Due to the stability of the business model, the company focuses on building an administrative system based on the business model and market requirements. For example:
- The company focuses its attention on stabilizing its market position by monitoring market development and competitors’ movements, monitoring growth opportunities, and dealing with market threats.
- The company is developing its management system in line with the growth that has taken place, as well as using more professional management methods, such as budgets and strategic planning.
The development of the management system and business process aims to enable the company to deal optimally with promising market opportunities and to overcome the threats of the stage to ensure continued long-term success.
Renewal stage
At this stage, the business model has become obsolete and has not been able to cope with changes in markets and the fluctuations in customers’ tastes.
The company’s business model has not been able to overcome the most innovative companies on the market, and the company is gradually losing its customers.
There is a classic example usually cited in this case: the typewriter producer that once prevailed; when the computer appeared, customers tended to use it for printing instead of a typewriter. Any company working in this area, unable to switch to producing a different product in time, faced severe collapse and downtime.
Companies at this stage have two options, either to fail and get out of the market or renew its business model by inventing new methods and products.
If the company can renew itself and invent a new business model, it will return to the beginning of a new life cycle. This is why it is called the “renewal phase”.
Conclusion
The business model represents the heart of the company; therefore, there is a direct impact and a great match between its life cycle and the life cycle of the company.
Each stage of the business model has its own requirements, and your knowledge of these stages and requirements helps you make the right decisions and the right choices.
The business model goes through four main stages during its lifetime:
Startup stage: The business model at this stage consists of the assumptions and expectations of the company’s founders. These assumptions need to be tested. Therefore, this stage called “searching for business model”.
Growth stage: After testing the business model and making sure it is the correct one, at this stage, the company aims to reach the optimum levels of production to make profits. The business model, at this stage, may need some improvements to suit the scale of growth required, but no substantial changes should be done.
Maturity stage: The business model at this stage is at its best. Moreover, it has achieved a degree of stability for the company, so it can overcome the most sudden and unexpected circumstances.
Renewal stage: At this stage, the business model is obsolete and has not been able to keep pace with changes in markets. The company two options, either to fail and get out of the market or renew its business model by inventing new methods and products.
Each stage of the business model requires different strategies and tactics. So, knowing the life cycle of the business model and the requirements of each stage prepares you to make the right decisions for your business and prevent your business from failer.
For more details on this subject and related topics, we suggest attending the Free Training course How to Build a Startup.
Originally published at https://todayfounder.com.
