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RBA Finance

The business lifecycle of internet companies

It is a common view that internet companies grow extremely rapidly and become valuable in their own right after one or two years. No business start-up can defy gravity and the laws of business

We have all read of the extraordinary performances of internet start up. One local start up – a daily deal, coupon internet business – started up with $50,000 start up capital in September 2011 and sold out less than 18 months later for more than $40 million to Living Social. The reality however is that most significant internet businesses follow a more traditional birth-to-growth model. Facebook is young but it’s now in its sixth year of business and not yet breaking even. Google actually took more than five years to grow into a profitable venture while LinkedIn has taken nearly 10 years to become a sustainable business venture. All are starting to exhibit a business lifecycle.

The lifecycle

Moving through the business lifecycle is not an easy process. We see the lifecycle in four distinct parts:

  1. start-up
  2. growth
  3. maturity and
  4. decline.

All businesses reach a point where revenues slow down from double or triple-digit growth to declining, flat, or single digit revenue. Where the business may have had first mover advantage or a new, compelling product that propelled its revenue and growth, now there is competition. In addition, other external factors become challenges, such as new regulations or changing economic conditions that require careful management. The bigger picture must be kept at the forefront of the organization. A clear vision and strategy are paramount so that every person in the company knows the direction to take.

The greatest concerns facing a company at this stage are:

  • First, to consolidate and control the financial gains brought on by growth in the previous stage; and
  • Second, to retain the advantages of a small-company more flexible in response than a large organization, along with an entrepreneurial spirit.

Resting on one’s laurels is one of the perennial problems a maturing business experiences, but this is the time when competition and the marketplace are relentless and there really is no time to rest.
Business leaders may be too immersed in the business to have worked ‘on’ the business. Yet most businesses will have at least one or two people in their organisation who can be entrepreneurail enough to be given some freedom to generate ideas for the business. It only takes s a bit of vision.

Getting mentor support

A mentor who has had experience in business growth could challenge your assumptions when entering into a late stage of the cyle. They might for example ask questions that you have not considered.
There are also groups and organisations that could be helpful in this regard. Like YPO (Young Presidents Organisation) and EO (Entrepreneurs Organisation) and others that are very useful too. They can be a great place to learn from others who have experienced the ups and downs of the business life cycle.