Most business models go through a number of lifecycle stages. These stages determine how people should go about running the business. Young, immature business models should mainly focus on experimentation and exploration of customer needs. Older, mature business models will usually focus more on execution and the optimization of proven value streams. Note that we refer to the lifecycle of businesses (or business models), not companies.
As long as your company operates only one business model, you are dealing with just one lifecycle. But when you have an established company that launches new business models, it is like a family having kids.
As a leader, you may be dealing with multiple business models in various lifecycle stages.
There is a founder or a co-founding team of the business, but the business is still just an idea, concept, or vision. The customer’s need for a solution (Problem/Solution Fit) is not yet validated. What you need to complete at this first level is your Product Vision and any preparations for seeking Product/Solution Fit.
The business is now more than just an idea, concept, or founder’s vision. But it is not clear what is the core business or the value proposition. In this stage, you have to figure out if the product you have in mind is indeed something that customers want to have, by talking with many people and testing your most important hypotheses with a low-fidelity Minimum Viable Product.
The customer’s need for a solution (Problem/Solution Fit) is now validated. People are willing to pay to get their problems solved.
There is a high-level strategy for the future of the business, but Product/Market Fit (customers loving the product or service) is not yet validated.
The business is focused on validating Product-Market fit. The startup works autonomously, and the available time and resources are not self-funded and business angels, VCs, or a larger corporations appear. The goal is to build something that customers want, something that they use, and something that they happily recommend to others.
Product/Market Fit (customers loving the product or service) is now validated and there is evidence of traction, retention, growth, or revenue. It is now clear what is the core business and the value proposition and the market appears to be large enough for a sustainable business. It’s now time to work on the second challenge: going through the remaining unvalidated hypotheses concerning customer channels, business partnerships and other parts of your business model.
The business does not need to focus anymore on Product-Market fit. Repeatability and scalability of the business model are validated. There are no business model hypotheses anymore that need to be validated, and the business model needs no more testing with prototypes or MVPs. There is increased competition which means that the company has to spend time improving business processes to further increase productivity and efficiency.
The business is one of the market leaders. The business is profitable and financially self-supporting, and it needs no more external funding by angels, VCs, or a larger corporation. The growth of the business drops to linear growth. The business can create (somewhat reliable) revenue forecasts, and it has a focus on efficiency and cost-cutting.
The product or service becomes unfocused with the introduction of many flavors, colors, or variants. There is no founder or co-founding team of the business anymore, or they are not 100% committed to the business. Parts of the business are being sold off to other companies.
The business remains critical to fund new ideas through internal startups and it also attempts to bring its established, profitable business model into new distribution channels and new markets.
The business model stops being validated, repeatable, or scaleable. Revenues and profits of the business are dropping, and there could be a negative cash flow. There is no investment in new ideas, products, and services. Many customers move to a newer or competing product or service.
The end-of-lifetime of the product or service is scheduled and near and the company’s current leaders have to make a decision about the business that is about to end: either shut it down completely, or break it up into valuable pieces and reuse them or sell them off to others.