What is Business Life Cycle Theory?

Enterprise Life Cycle Theory

Enterprise Life Cycle Theory

There is a life cycle in the development of everything in the world, and enterprises are no exception. The enterprise life cycle is like a pair of invisible giant hands, always swaying the trajectory of enterprise development.

Cycle Characteristics Generally speaking, the law of change of enterprise life cycle is a long-range cycle of 12 years. It consists of four different stages of the small cycle, each small cycle of three years. If further divided, the 12 months of a year can be divided into 4 micro-cycles, each micro-cycle is 3 months. The law is less industry-specific and applies to a wide range of industries and even most business phenomena. As different enterprises exist in different life cycles, different life cycles reflect different characteristics of change. Although they have *** the same law, but in the 4 different cycle stages change differently, their respective trajectories are different. These different features of change are summarized in the following three changes:

(a) ordinary type

Cycle running order: rising period (3 years)? Peak period (3 years)? Steady period (3 years)? Low period (3 years). Ordinary variation is the most common, with around 60% of businesses falling into this variation. It operates in 4 small cycles that are relatively stable, with no major ups and downs. Enterprises belonging to the ordinary type of change, even if the business performance is mediocre, but as long as there are no major investment mistakes in the downturn, generally can be relatively smooth through the cycle of 4 small cycles.

(ii) Rise and fall type

The cycle running order: up period (3 years)? Peak (3 years)? Low period (3 years)? Stable period (3 years). Rise and fall type of change is more complex, not easy to grasp, belong to the peak and decline, the ups and downs of the type. This type of change in the proportion of enterprises accounted for about 20%. Its trajectory in the cycle transition process sudden and drastic changes, directly from the peak into the trough. At this stage of the cycle of the enterprise, the operator will generally be confused by the immediate splendor, the wrong estimate of the situation, desperately expanding the law of investment, ready to do a big job. Unbeknownst to such mistakes in investment decisions, the results lead to foregone conclusions, or even total destruction.

(C) obscure type

Cycle running order: down period (3 years)? Low tide (3 years)? Peak period (3 years)? Stable period (3 years). The name is Obscure, implying the meaning of Towers. Businesses in this type of change have one less up period and one more down period in their operating cycle compared to the above two types of change. This means that in a 12-year cycle of 4 mini-cycles, this type of business has 3 fewer years of opportunity for growth and 3 more years of downturn. The percentage of businesses in this category is about 20%.

A normally functioning business that has been in a recessionary slump for six years is not only demoralized, but also puts its decision makers to the test. This cycle stage of the business decision-makers, prone to the following two mindsets: one is completely pessimistic and disappointed, lost confidence in the future, do not want to make any effort to let the business of its own; the other out of a desperate gambler's mind, desperately trying to expand the investment, to take the boat, back to the water to save the way the defeat. This kind of hasty approach will not only not help, but also sink deeper and deeper into the trap. So at this stage, both of the above strategies are not desirable.

The obscure type of change in the enterprise has many disadvantages, but also has a unique advantage, it is in the down and down two small cycle stages of the low cycle, the trajectory of the sudden dramatic change, directly from the trough to the peak. In view of this change in characteristics, business decision makers should weigh the pros and cons, to make full use of this advantage, the adverse into favorable factors. It's a blessing in disguise, how to know the blessings and misfortunes. Enterprises in the doldrums, certainly unfavorable, but analyzed from another perspective, this period of time also gives enterprises a respite, adjust the combination of a great opportunity to use the corresponding strategic adjustments, focusing on medium- and long-term goals of the investment.

Positioning your business

Depending on the time of development of a business, using the years 1991, 1994, 1997 and 2000 as markers to position yourself in the type of business, we can broadly be divided into the following five categories:

(a) A business that has been in development for more than 12 years, if it enters an upturn in 1991, 1994 Entered the peak period, 1997 into a stable period, 2000 into the downturn, then it can be inferred through the 12 years of four small cycle cycle this business belongs to the ordinary type of change in the enterprise, it will be in the next cycle in 2003 into the upturn. Other types of enterprises and so on;

(ii) the development time in 10-12 years, that is, in 1991-1994 years to start the enterprise, if in 1994 into the upturn in 1997 into the climax, 2000 into the downturn, then it can be deduced that the enterprise belongs to the ups and downs of change in enterprises, it will be in the next cycle of 2003 into the smooth period (other types of enterprises). 2003 into a stable period (and so on for other types). This type of enterprise to pay special attention to the 2000 directly from the peak into the trough of the change characteristics, which is the only sign of the identification of the fall type of enterprise, the low-tide period of blind expansion led to bankruptcy and closure of the enterprise is the fall type of enterprise's biggest potential crisis;

(c) the development of the time in the 7-9 years, that is, in 1994-1997, the enterprises founded during the period. If it enters the falling period in 1997 and the low tide in 2000, it can be inferred that it is an enterprise of obscure type of change, and it will enter the peak period in 2003. There are two main features that characterize this type of business: it has been in a downturn for six years; and it goes directly from a downturn to a peak. The key to the survival and growth of an Obscure type of business is to adopt an austerity strategy to tide over the first 2 cycles of the downturn before a bright future is possible. It should be noted that if the enterprise enters an upturn after 1997 and a peak in 2000, it will enter a plateau in 2003, and this type of changing enterprise still belongs to the ordinary type of changing enterprise; (d) The time of starting a business is in about 6 years, i.e., enterprises founded in 1997-1998, which type of changing enterprise can be inferred according to the nearly 2 cycles of cycling change enterprises. Such as after the start-up of the downturn, 2000, a sudden rise into the peak, can be learned for the obscure type of enterprise; such as after the start-up of the upturn, 2000 into the peak, it can be inferred for the ordinary type of change in the enterprise;

(e) start-up time in the following 3 years of enterprise, there is no previous cycle can be corroborated, it is more difficult to judge, can only be based on the actual situation of the enterprise and my research experience to judge the current enterprise. I research experience to judge. Founded in 2000 after the enterprise, such as in the state of low tide, this type of enterprise is likely to belong to the general type, the next cycle will be in 2003 into the upturn; such as in the stable period, may belong to the ups and downs of change in the enterprise. Not much to say here.

The vast majority of the development cycle of the enterprise can be closely with this law, but does not exclude a certain time error, just as the law of value also has the phenomenon of oscillation. Of course, there are also a few special phenomena, such as the enterprise continued to develop or downturn for 10 years, these are closely related to the enterprise's innate quality of good and bad and acquired the development of the environment is good or bad. For these enterprises, there are still peaks and troughs in the small cycle. Enterprises that continue to grow can adopt a developmental strategy in general, but only in each phase of the cycle to make the appropriate strategic adjustments. Enterprises that have been in a downturn for 10 years should adopt a tightening strategy in general and adjust their strategy accordingly at each stage of the cycle. In addition, should consider the characteristics of the industry in which the enterprise is analyzed, such as the IT industry and the traditional industry, the time difference between the life cycle of the enterprise, especially the Internet industry, is a fast-changing industry, the rise of an enterprise may be 2-3 years, the decline may be 1 year. Therefore, when conducting enterprise self-analysis, you need to add your own industry characteristics, at least first to position yourself as a traditional industry or a fast-changing industry, and then fine-tune.

Figure out the general pattern of change in the enterprise life cycle, and then refer to the characteristics of the three different types of change, the right to recognize which type of change they belong to the enterprise, and then based on the definition of the time, the projection of the enterprise's various cycles of the time period. Finally, based on these data, the development trajectory of each stage of the enterprise life cycle is charted for reference.

Selecting the appropriate strategy for the cycle

Different strategies should be adopted for different cycles, so that the overall strategy of the enterprise can be more forward-looking, targeted and operable. According to the degree of deviation from the starting point of the strategy, the overall strategy of the enterprise can be divided into the following three types: development, stabilization and austerity.

(A) development-oriented strategy, also known as offensive strategy. So that the enterprise in the existing strategic base level to a higher level of goal development, the strategy is appropriate to choose in the life cycle of the enterprise in the stage of change of the rise and peak, the time for six years.

(ii) stable strategy, also known as defensive strategy. So that the enterprise in the strategic period expected to achieve the business situation is basically maintained in the scope and level of the strategic starting point. It is appropriate to choose to implement the strategy in the stable period of the change phase of the enterprise life cycle, the time is three years.

(3) tightening strategy, also known as retreat strategy. It refers to the enterprise from the existing strategic base level backward contraction and retreat, and deviation from the strategic starting point of the strategy. Adoption of austerity strategy should be selected in the enterprise life cycle change stage of the low tide, the time for three years.

Of the above three strategies, it can be said that all companies are least likely to want to adopt an austerity strategy because it runs counter to their aspirations. Many companies prefer to adopt a growth strategy rather than a tight strategy even when the conditions are not ripe. In fact, from a strategic point of view, sometimes a strategic retreat is more productive than an offense. For a company to survive and thrive, it must place both strategies in the same strategic position of importance.

Today's small and medium-sized enterprise operators are very easy to enter a misunderstanding, that as long as bigger and stronger, the enterprise can survive and develop. Under the guidance of this business ideology, a developmental strategy is adopted for blind expansion. In the peak of the enterprise life cycle will achieve certain results, once into the downturn is just the opposite, the consequences are unimaginable. The downturn is the product of the exhaustion of the cycle, is the inevitable development trend. Enterprise strategy can only be successful if you choose the best time. The application of cyclical strategy is aimed at this.