​Start-up Growth Maturity & Innovation

Question: ​How do we develop a predictable and accurate forecast of the business environment?

Let’s talk about the business lifecycle.  Business lifecycle, in its simplest form, is about time and money.  Time is years, months, or even decades. Money can be measured in different ways like profit, revenue, cash flow, and also time, opportunity, etc. As with business, products follow the same trajectory, in its most simplistic form.

The company begins with its launch. It experiences growth. Sometimes rapid growth, like a firecracker on a short fuse. As it approaches the expansion phase, competition may become more aggressive and growth may realize a slow-down.  This may also exert a much-needed shake-up or restructuring for a company revival.  At the maturity stage, this is the reached pinnacle point. As its peak, the cycle turns downward. The decline begins. The signs are apparent and recognized as either a decrease in sales or cash flow. It is at that time, the company would inject a recovery mechanism or move towards closure. ​This is the classic business life cycle.


At the various stages of this life cycle, the financial aspects look very different. The first and most obvious is sales or revenue.  At launch, it is zero. Typically, it grows very rapidly during the growth phase. There is a peak to the sales growth as competition enters and following that peak, is the decline. The industry becomes mature and eventually declines. 

When profit comes into the company, it may be a negative profit.  The overhead to create the business generated debt to be paid back from the profit from sales. The break even point would be adjusted and once met, the company gains positive profit. The profit cycle lags the sales cycle. There’s a time delay between the sales growth and the profit growth. Any funding goals would need to incorporate these theories into its financial modelling.

The third part of the cycle is cash flow. The actual cash of the business. Cash will lag profit. Consider the upfront costs to start the business. Many would be capitalized and not reflected in profit.  It might not impact cash flow. In the early phases of the launch, cash dips, and perhaps more negatively than profit, then rises higher than profit in later phases when capital spending to drive the business is largely depreciated. Therefore, cash generation is higher than profit on the income statement. 

The cycle can be repeated over and over again. There are so many examples. As the company lifecycle matures and goes into a decline, businesses do experience a life cycle extension by reinventing themselves, reinvesting in technology, growth through acquisition or by extension. Depending on the paradigm shift, it would begin the process and cycle again.  Important to note, the business management team may be very close to the events to recognize the timing.  It might call it too soon or too late.  For this, clients of ours have been very resilient by connecting us to the challenges early.