A business undergoes several stages before becoming an established name... and then it goes through some more stages. Find out the details pertaining to stages of business development from the following, easy-to-understand write up.
To define business in contemporary parlance, it won't be an exaggeration to regard one as a distinct entity with a life and personality of its own rather than merely a commercial venture undertaken to reap economic benefits.
You see, just like an organism goes through various stages of biological growth and decline to complete a single life cycle, a business also goes through various initial stages before becoming an established entity.
As is with living organisms, the journey of a business doesn't end here. After reaching its optimal stage of growth and development, every business goes through a stage of stagnancy followed by decline. All these stages that define the journey of a business from inception to decline are collectively known as the stages of business development.
Business Development Stages
Almost all businesses go through all the five stages laid out in details given here. Go through each of them to understand why it is almost impossible for any business to skip any step and proceed to the next.
Stage - 1: Conception of an Idea
No venture can come into being without an idea of it being conceived in the venturist's mind.
Likewise, the idea of a business is the seeds which, when sown in capital and nourished with labor and entrepreneurship, grows into a benevolent tree the economic fruits of which are shared by all stakeholders.
When conceiving an idea of a business, various aspects of the economic environment are taken into consideration such as the specific industry, level of competition, availability of resources, market and customers, etc.
Also, financial estimates are drawn up to get an idea of the extent of investment required, the amount of earnings expected and the ratio between investments and earnings. This is the stage where the business blueprint is developed. It's like a couple deciding that they are ready for a child and making preparations for its arrival.
Stage - 2: Materialization Of the Concept
It is nothing but the startup phase. In this stage, all the necessary measures for bringing the conceived business idea into actual existence are undertaken by the involved parties. All legal formalities such as registration, incorporation etc. are undertaken to give the business a legal status and to mark its arrival in the industry and the market.
At this stage, before going for the commencement legalities, provisions must be made for acquiring factors of production such as land, labor and capital and soon after legal business commencement, their functional interactions must be kick started.
In other words, at the time of legalization of its entity, a business must be totally ready to commence production as soon as all legal formalities are completed. It wouldn't be surprising if a business is already finalizing deals with its first customer at this point.
Stage - 3: Growth Of the Business
As the scale of production and other commercial activities (such as transportation, storage, bulk raw material purchase, etc.) increases, the business will earn what is technically known as economies of scale.
This usually happens when optimum utilization of production, storage and transportation capacities take place with an increase in the scale of production.
This means that when a capacity of 10, costing 20 economic units, is being used to produce 5 units of finished product, the cost of each unit of finished product will be 4 economic units (total economic units/ units of finished goods produced).
Now, when the scale of production increases such that 10 finished products are produced using those same 10 units of production capacity (costing 20 economic units), the cost per unit of production comes down to 2 economic units.
This will lower the overall cost of production and the business will be able to offer its products to customer at a lower price. This low-cost phenomenon makes a new business' position more competitive as even by keeping the profit percentage at par with standard industrial rates, it is able to attract more customers and run in profit at the same time.
Stage - 4: Establishment and Expansion
Once a business starts generating profits, it makes efforts to get as much market share of its region of commercial activities as possible. By this, the business has already made its presence felt in the consumer market and established its brand.
Once it becomes a major player in its native market, an established business should start looking out for expansion opportunities. That way, even when it goes on decline in its native market, it can still make profits from other markets where it's revenue centers are established.
Expansion at this point is the right thing to do as the establishment of its brand name gives it a certain leverage even in new markets which makes building a customer base there easier.
Stage - 5: Maturity and Decline
As the business spends years basking in the glory of economic returns and brand reputation, there are other business ideas that are being conceived by other venturists and new business ventures are taking shape everyday.
This means that in the face of increased competition and the low prices offered by the new competitors, the existing business faces a decline in terms of competition and cost of operations. Also, as a business gets established and starts manufacturing at optimal capacity, it slowly loses out on the economies of scale.
In fact, in order to maintain the established business, market its products and kill market competition, a business is compelled to undertake certain costs which are technically known as diseconomies of scale as these costs increase the per unit production cost of the goods.
If the manufacturer is to keep prices the same, his profit percentage decreases and if he is to increase prices, he loses his customers to competitors. In such as situation, when stuck between the devil and the deep sea, it is a viable option for a mature business to either sell out, or agree for a merger or amalgamation.
At the maturity stage, diversification may be an option for huge corporates who can raise or afford sufficient capital to enter new business domains and develop fresh consumer bases in those markets based upon the strength of their brand reputation.
If things turn out favorably, and as projected, this could translate into tremendous success. However, if things turn bad, or contrary to success projections, the debacle could be too messy for anybody to clean up.
Business is a tricky field and those who wish to enter it must do so after proper planning, practical analysis and realistic expectations.
However, as the saying goes, 'No risk, no gain' - if you persevere enough and do things intelligently and practically, business can be the most rewarding of all economic endeavors known to mankind! The satisfaction of creating something fruitful from nothing - an economic enterprise from scratch - cannot be matched by anything else in the entire Creation!