In this topic, we will look at life cycle theory. Much focus tends to be placed on the startup phase of an entrepreneurial venture. However, for organisations to be successful, they must move beyond this phase and be scalable and flourish beyond their initial launch. We will study various models that identify the business life cycle with distinct aspects of importance at each stage. We will also look at the entrepreneurial life cycle based on a more historical view. It is essential to keep asking yourself what we can take away from these different models and their relevance to future entrepreneurs.
Welcome to Topic 9: The Journey Part 1: Life Cycle Theory of Organisations. In this topic, you will learn about:
- Various models identifying business life cycles
- Growth of organisations beyond the startup stage
- The entrepreneurial life cycle.
These relate to the Subject Learning Outcomes:
- Discuss the importance of entrepreneurship as a driver of growth and how it varies from "business as usual".
- Identify generally shared traits of entrepreneurs, although there is no single set of entrepreneurial traits.
Welcome to your pre-seminar learning tasks for this week. Please ensure you complete these prior to attending your scheduled seminar with your lecturer.
Click on each of the following headings to read more about what is required for each of your pre-seminar learning tasks.
Read Lichtenstein, GA & Lyons, TS 2008, ‘Revisiting the business life-cycle; proposing an actionable model for assessing and fostering entrepreneurship’, International Journal of Entrepreneurship and Innovation, 9(4):241-250.
Task: In your reflective journal, discuss the following:
- Why do you think it is useful to develop a model describing the various stages of entrepreneurship? Or why not?
- How might studying models like this be helpful to you as an entrepreneur? Or why do you think this is not the case?
You can access the reflective journal by clicking on ‘Journal’ in the navigation bar for this subject.
The following video features Ichak Adizes, who explains the need to work on the organisation to create strong foundations and avoid falling in line with life cycle theory.
Watch Adizes official 2019, Dr Adizes talks about what the right sequence is to rapidly scale and grow your organization, streaming video, YouTube.
Be prepared to discuss your thoughts regarding what Adizes talks about during the seminar.
Find an organisation in either stage 2, 3 or 4 of Lichtenstein and Lyons’ model. Add a post to Topic 9: Forum activity 1 to:
- Introduce your example
- Identify which stage the organisation you found is in
- Justify why you think this is the case
- Then, respond to at least two (2) posts from your peers and explain why you agree or disagree with their findings.
You can also navigate to the forum by clicking on 'ENT100 Subject Forum' in the navigation bar for this subject.
The following video explores what is most important to the success of startups.
Watch Ted 2015, The single biggest reason why start-ups succeed | Bill Gross, streaming video, YouTube.
Be prepared to discuss your reflections about this video with your lecturer during the seminar.
Read through the topic content and action the learning tasks within it.
Studying various models may help us identify what stage an entrepreneurial venture is at and what is required to be successful at that point in the organisation’s life cycle.
Lichtenstein and Lyons’ business life cycle model
Lichtenstein and Lyons (2008) studied various models to propose what they felt best describes the life cycle of an organisation. They proposed a model that can be applied universally. Lichtenstein and Lyons’ (2008) model has six (6) stages, described as follows.
Stage 0 - Pre-venture
At this stage, the entrepreneur is interested in starting a venture or has identified a specific opportunity. This stage ends when the opportunity has been acted upon, and the venture is born.
Stage 1 - Infancy or existence
This stage kicks off when the venture is launched and offers a product or service. Once the business breaks even, in other words, revenue generated from sales is the same as the total cost for the volume of those sales, this stage ends.
Stage 2 - Early growth
Early growth has been achieved once the venture has reached that break-even point from sales and grows to be a sustainable business with healthy or at least minimal profits.
Stage 3 - Expansion or sustained growth
Once the business has achieved healthy profit and grows beyond this, it is in the third stage of the life cycle. This stage ends once the organisation has achieved at least some of the following:
- grown quickly
- operated profitably
- gained market share
- been able to compete with other organisations
- has expanded
- demonstrated its ability to survive.
Stage 4 - Maturity
Once the organisation has achieved the size advantage and shown stable operations, it can be classified as a mature venture. Growth will have slowed, and the market will be saturated with the looming competition closing in. The organisation should transition from a single product or service line to a multi-product company at this stage. Diversification is key here.
Stage 5 - Decline
This stage starts when market share begins to decline. Cash flow and profitability, while remaining acceptable, are impacted by the increased competition. Complacency and risk avoidance have led to the decline of the organisation. Once the firm is either sold, closed off or completely reinvents itself, this phase ends.
What can this model help us do?
When you analyse an organisation, these stages can be used to determine where in its life cycle the venture sits. It also identifies what is needed to move the organisation forward or reinvent themselves to start again and avoid total decline for mature organisations.
Hunter’s entrepreneurial life cycle
Ian Hunter (2005) examined historical data to develop the entrepreneurial life cycle consisting of five (5) stages, taking a slightly different approach. He based this on New Zealander entrepreneurs between 1880 and 1910. These colonial entrepreneurs were studied to learn about the context of economic development at the time and see how the entrepreneurs’ careers developed in relation to this.
Like our definition of modern entrepreneurs, Hunter (2005) looked at entrepreneurs as achieving at least one (1) of the following:
- Created a new enterprise (in other words, startup venture)
- Revamped a struggling or failing enterprise
- Transitioned a small business into a big enterprise
- Created a new business structure by merging two (2) existing firms together.
The following table sets out the five (5) stages. You will also find the essential resources and skills that characterise what is required for each stage and what is needed for the entrepreneur to transition to the next stage.
| Stage | Description | Key entrepreneurial skills and resources | Transition to the next stage |
| Stage 1 | The initial stages of an entrepreneur’s career which led to business activities. |
|
The transition to stage 4 relied on recognising potential opportunities. |
| Stage 2 | At stage 2, they are established and operate the identified opportunity. |
|
The transition to stage 3 happened once the first venture had ceased or further opportunities were developed, which signified a substantial change to the original venture. |
| Stage 3 | Stage 3, the exploratory stage, is was where further ventures were started. Typically, this stage signified the most successful one within the entrepreneur's career. |
|
The transition to stage 4 relied on adopting stable management practices. |
| Stage 4 | Stage 4, the growth phase, is marked by focus and expansion. |
|
The transition to stage 5 depended on governance practices for the organisation. |
| Stage 5 | The final stage of an entrepreneur’s career. |
|
During this stage, the business was often passed on to the entrepreneur’s family members or ceased. Where no heir was apparent, the entrepreneur's death ended the family business. During this stage, the founder was typically in their 60s, 70s or 80s. |
What can we learn from colonial entrepreneurs?
There are three (3) important conclusions we can draw from Hunter‘s research (2005), these are:
- The transition from one stage to the next was not guaranteed and loss, failure or even bankruptcy occurred for numerous colonial entrepreneurs.
- Across the lifecycle, Hunter found that continual economic success did not happen and failure could occur at any stage.
- Even in cases where the entrepreneur ultimately failed and their venture went bankrupt, the entrepreneurs’ resilience enabled them to return to entrepreneurial activity and be successful in future ventures.
Knowledge check
Complete the following two (2) tasks. Click the arrows to navigate between the tasks.
Key takeouts
Congratulations, we made it to the end of the topic! Some key takeouts from Topic 9:
- Lichtenstein and Lyons’ model has six (6) stages:
- Pre-venture
- Infancy
- Early growth
- Expansion or sustained growth
- Maturity
- Decline.
- We can use business life cycle models to identify which stage in its life cycle an organisation is currently positioned and understand how it may develop further.
- We can also identify different stages in the entrepreneur’s life cycle. These identify key resources and skills entrepreneurs need at various stages of their career and venture development.
- By studying these models, we can learn how to develop startup ventures beyond their launch and how to be successful as entrepreneurs and learn from failures.
Welcome to your seminar for this topic. Your lecturer will start a video stream during your scheduled class time. You can access your scheduled class by clicking on ‘Live Sessions’ found within your navigation bar and locating the relevant day/class or by clicking on the following link and then clicking 'Join' to enter the class.
Click here to access your seminar.
The following learning task will be completed during the seminar with your lecturer. Should you be unable to attend, you will be able to watch the recording, which can be found via the following link or by navigating to the class through ‘Live Sessions’ via your navigation bar.
Click here to access the recording. (Please note: this will be available shortly after the live session has ended.)
In-seminar learning task
The in-seminar learning task identified below will be completed during the scheduled seminar. Your lecturer will guide you through this task. Click on the following heading to read more about the requirements for your in-seminar learning task.
During the seminar, your lecturer will facilitate a discussion based on your pre-seminar learning tasks. Be prepared to talk through your findings; any ideas you have as to why these models may be useful or not; and what they could mean to your future as an entrepreneur.
Welcome to your post-seminar learning task for this week. Please ensure you complete this after attending your scheduled seminar with your lecturer. Your lecturer will advise you if this is to be completed during your consultation session. Click on the following heading to read more about the requirements for your post-seminar learning task.
Assessment 3 – develop a draft for your reflective analysis. In line with this week’s topic, consider what skills you have that would be useful as an entrepreneur. Develop specific questions to ask your lecturer during the consultation session and be prepared to discuss your approach to the assessment.
Each week you will have a consultation session, which will be facilitated by your lecturer. You can join in and work with your peers on activities relating to this subject. These session times and activities will be communicated to you by your lecturer each week. Your lecturer will start a video stream during your scheduled class time. You can access your scheduled class by clicking on ‘Live Sessions’ found within your navigation bar and locating the relevant day/class or by clicking on the following link and then clicking 'Join' to enter the class.
Click here to access your consultation session.
Should you be unable to attend, you will be able to watch the recording, which can be found via the following link or by navigating to the class through ‘Live Sessions’ via your navigation bar.
Click here to access the recording. (Please note: this will be available shortly after the live session has ended.)
The following additional resource can be used to extend your understanding of this topic:
An additional view on various models as well as a discussion on the entrepreneurial ecosystem and how this can enhance entrepreneurial activity is provided by:
- Cantner, U, Cunningham, JA, Lehmann, EE & Menter, M 2021, ‘Entrepreneurial ecosystems: a dynamic lifecycle model,’ Small Business Economics, 57:407-423.
References
- Adizesofficial 2019, Dr Adizes talks about what the right sequence is to rapidly scale and grow your organization, streaming video, YouTube, https://youtu.be/dqQLAOuKQ_E
- Frederick, H, O'Connor, A & Kuratko, DF 2018, Entrepreneurship, 5th edn., Cengage.
- Hunter, I 2005, ‘Risk, persistence and focus: a life cycle of the entrepreneur’, Australian Economic History Review, 45(3):244-272.
- Lichtenstein, GA & Lyons, TS 2008, ‘Revisiting the business life cycle: Proposing an actionable model for assessing and fostering entrepreneurship’ International Journal of Entrepreneurship and Innovation, 9(4):241-250.
- Ted 2015, The single biggest reason why startups succeed | Bill Gross, streaming video, YouTube, https://www.youtube.com/watch?v=bNpx7gpSqbY
