# Understanding Business Life Cycles: Types, Stages, and Key Examples

![Life Cycle: The birth, growth and maturation, and eventual decline of a product or service.](https://www.investopedia.com/thmb/0BBJhRNlH8Cqn-oE0FeijpfOzGk=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/lifecycle.asp-FINAL-1-1-b7f0e15f950a41f0a3dc0963ab38f262.png)

*The life cycle represents the length of time it takes for a product to be introduced in the market until it is eventually removed. — Joules Garcia / Investopedia*

> **Definition**
>
> A life cycle in business is the series of stages that a product, business, or industry goes through from its inception and growth to its eventual decline.

## What Is a Business Life Cycle?

A life cycle for a business mirrors the natural life cycle, following a growth to maturity pattern of a product, company, or industry from existence to eventual [critical mass](https://www.investopedia.com/terms/c/critical-mass.asp) and decline.

There are several key steps that business life cycles take, including development and the aforementioned growth and decline. Understanding these stages and the business life cycle overall can give [investors](https://www.investopedia.com/terms/i/investor.asp) and others a better understanding of how to invest their money.

We will discuss life cycles as they apply to products, businesses, industries, and economies—each following a similar pattern.

Business life cycle stages are relevant not only to investors but also to business owners. Those who are well-prepared can ride the challenges of the startup phase, where many businesses fail.

### Key Takeaways

*   A business life cycle includes stages from development to decline, like biological cycles.
*   Understanding life cycles helps investors make informed decisions about financing and growth strategies.
*   Life cycles are applicable to products, businesses, industries, and economies, each following a similar pattern.
*   Products undergo phases: development, market introduction, growth, maturity, and decline/stability.
*   Electric cars, currently in their growth phase, demonstrate a life cycle in action.

## Understanding the Business Life Cycle

The idea of a cycle in a [business](https://www.investopedia.com/terms/b/business.asp) context is borrowed from biology. In biology, a life cycle represents a series of changes that an organism undergoes, from birth to death. Extended to a business setting, an entity's formation and eventual decline follow a similar path to biological applications.

The life cycle represents the entire existence or life of something in the marketplace. This includes products and services, businesses and [corporations](https://www.investopedia.com/terms/c/corporation.asp), and even industries. In most cases, even the [economy](https://www.investopedia.com/terms/e/economy.asp) goes through a life cycle. We look at each of these in more detail a little further down.

Throughout each of these types of life cycles, there is a development, [maturity](https://www.investopedia.com/terms/m/maturity.asp), and decline phase. As such, the life cycle represents the length of time it takes for a product to be introduced in the market until it is eventually removed.  

> **Fast Fact**
>
> The life cycle is also commonly referred to as the business life cycle.

## Key Considerations in Business Life Cycles

Many people mistakenly believe growth stops when a product or business reaches its peak. In certain cases, [profits](https://www.investopedia.com/terms/p/profit.asp) may dip or a business owner may consider selling their company during this period. This may be the case for startups and newer businesses.

But this isn't a one-size-fits-all approach. Reaching maturity often means growth continues, as margin improvements and innovations boost income. While growth can happen in maturity, mature firms with older products might issue [dividends](https://www.investopedia.com/articles/stocks/07/dividend_implications.asp) more often.  

This is why investors need to understand how the life cycle works. Doing so can help them make better and more informed decisions about how to invest their money. For instance, it's important to note that firms predominantly in the development phase are generally characterized by lower sales and are more speculative in nature than firms in the growth or maturity phase.

## Exploring Different Types of Business Life Cycles

As mentioned above, there are different types of life cycles that take place. The most common types are product, business, and industry life cycles. But there are others that take place in the realms of [finance](https://www.investopedia.com/terms/f/finance.asp) and investment that people should understand.

### Product Life Cycle

One of the most common types of life cycles is the [product life cycle](https://www.investopedia.com/terms/p/product-life-cycle.asp). This deals with how long products last in the market from development to decline by different companies, whether they are new/startups or established corporations.

The following are the five steps involved in the life cycle of a product (or service):

*   **Product Development Phase**: This phase includes market analysis, product design, conception, and testing of a product or service. Funds from the initial start-up are typically used for this phase, and if [revenue](https://www.investopedia.com/terms/r/revenue.asp) is low and development costs are high, it can be a period of low [cash flow](https://www.investopedia.com/terms/c/cashflow.asp) for the company.
*   **Market Introduction Phase**: This [marketing](https://www.investopedia.com/terms/m/marketing.asp) phase includes the initial release of the product, usually marked with high levels of advertising. At this stage, the company may be spending its capital in the hope of generating revenue in its next phase. The money for this phase usually comes from early investors, company owners, or suppliers.
*   **Growth Phase**: This phase is when sales growth begins to accelerate, characterized by increasing sales year over year. As production levels increase, [economies of scale](https://www.investopedia.com/terms/e/economiesofscale.asp) may occur, generating better margins. As such, more investment in growth is required. An increase in competition is probable, and gross margins might then decline, making the product less profitable on a per-unit basis but with higher volume. Cash flow and capital might come from profits, bank loans, [partnerships](https://www.investopedia.com/terms/p/partnership.asp), and rounds of investments from [venture capital](https://www.investopedia.com/terms/v/venturecapital.asp) firms.
*   **Maturity Phase**: In this stage of growth, a product will reach its [peak](https://www.investopedia.com/terms/p/peak.asp) demand in the cycle. Further spending on advertising will have little to no effect on increasing demand because it plateaus, and the cash flow streams come from higher profits due to economies of scale, established branding, supplier credit terms helping [working capital](https://www.investopedia.com/terms/w/workingcapital.asp) due to volume buying, and bank financing due to the business's strong financial health. Private equity firms are interested in this cycle stage and company profiles.
*   **Decline/Stability Phase**: The decline/stability phase arrives when a product has reached or passed its point of highest demand. At this point, demand will either remain steady or slowly decline as a newer product makes it obsolete.

### Business Life Cycle

Businesses also have their own life cycle. This means they go through various stages that lead from their creation to their decline—just like products. The following are the most common stages in the life cycle of a company:  

*   **Startup**: This phase is characterized by [research and development (R&D)](https://www.investopedia.com/terms/r/research-and-development-expenses.asp). This includes the type of business, the products and services they intend to sell, the costs associated with running the business, and how the company will be run, among other things. A [business model](https://www.investopedia.com/terms/b/businessmodel.asp) is key during this stage, as it helps keep the owner(s) on track and can mean the difference between getting financing/raising initial capital and struggling to get off the ground. Once this is all done, the stage is set, and the company can officially launch.
*   **Growth**: This is the stage at which companies distinguish themselves from their competition in the market. Owners tend to (and should) focus on ways to grow and expand. It involves focusing on client relationships, boosting investment, and seeking capital. Some companies may take on debt to finance their growth or may consider going public through an [initial public offering (IPO)](https://www.investopedia.com/terms/i/ipo.asp). This is also a good time for business owners to identify and address any areas that may challenge or stunt growth.
*   **Maturity**: The business should be established in the market by this point with a strong management team and dedicated employees. Annual growth should be consistent, and there may even be opportunities for [acquisitions](https://www.investopedia.com/terms/a/acquisition.asp), whether of a rival business or a new product line. Company owners may also want to consider spinning off business lines and/or products if this makes sense. Owners may reinvest for more growth or consider selling their stakes.
*   **Decline:** Revenue may rise and fall during the maturity stage. But if there are consistent drops, there's a good chance it's in decline. To save the company, a business owner should look at ways to turn it around. This may come through innovation. If this isn't possible, the only way to move forward is to reinvest or sell. Investment costs more at this stage, and selling may be harder with lower returns.

Understanding how these stages work can make a big difference to investors and, more importantly, to business owners. Many businesses fail to get off the ground during the [startup](https://www.investopedia.com/terms/s/startup.asp) phase because owners don't take enough time and rush through the process. Those who are well-prepared can ride the waves and better navigate themselves through any challenges that may arise to achieve success.  

### Industry and Economy Life Cycle

Industries and economies often follow the same stages during their life cycles. These include:

*   **Expansion**: Rapid growth, higher production levels, and lower [interest rates](https://www.investopedia.com/terms/i/interestrate.asp) occur during this time. Other factors that make up this stage include an uptick in employment, supply and demand of goods and services, and profits. There is the threat of inflationary pressures increasing when the economy expands too quickly.
*   **Peak**: Growth hits the maximum rate during this stage. Several key characteristics stand out during this period—notably, a short-term stabilization in prices. This can be followed by a reversal downward. As such, there are normally imbalances that arise during the peak, which require correcting.
*   **Contraction**: A [slowdown of growth](https://www.investopedia.com/terms/d/decliningindustry.asp) leads to a correction. This is characterized by higher [unemployment](https://www.investopedia.com/terms/u/unemployment.asp), a drop in consumer demand, and higher supplies. Businesses and individuals start to curb costs and spending. Prices reach such a high point in the economy that intervention may be needed, such as increasing interest rates and/or increasing the [money supply](https://www.investopedia.com/terms/m/moneysupply.asp).
*   **Trough**: This is the point where industries and economies reach their lowest point. For instance, demand wanes to the point where consumers don't spend as freely as before. Although things may be tough, the trough does provide an opportunity for companies and individuals to restructure their finances and their [budgets](https://www.investopedia.com/terms/b/budget.asp).

The analysis of a business or company can show the stage a company is in, and the same is true for an economy. By analyzing the four stages of a company's [industry life cycle](https://www.investopedia.com/terms/i/industrylifecycleanalysis.asp), financial decisions, like estimating forward-earning ratios and projecting future financial earnings and performance, can be made with greater knowledge.  

> **Tip**
>
> If we think of the economy and commerce as a "living organization," adapting and transforming to its surroundings, we can find many biological analogies for business challenges, such as "survival of the fittest."

## Real-World Examples of Business Life Cycles

### Tab Soda

Coca-Cola released this diet soda in 1963, decades before Diet Coke's heyday. Tab was the company's first foray into the diet drink market. The drink became popular in the 1970s and early 1980s. But its popularity fizzled out when Diet Coke created a decline in the Tab's market share.

Coca-Cola discontinued Tab in 2020, along with other products that were [underperforming](https://www.investopedia.com/terms/u/underperform.asp). This discontinuation marked the decline life cycle phase for the once-popular diet beverage.

### Electric Cars

The [electric car](https://www.investopedia.com/top-ev-stocks-7422145) is a prime example of a product in the growth phase. The global electric vehicle market is worth approximately $1.6 trillion in 2025 and is estimated to grow significantly, potentially hitting $6.5 trillion by 2030. And it's not just Tesla running the electric car charge anymore. Top market players also include Kia, Hyundai, BMW, Volkswagen, Ford, and Toyota.

## What Are the Stages of a Product Life Cycle?

The product life cycle is the time it takes to go from development to decline. Put simply, the life cycle for a product takes place from conception to the time it is removed from the market.

## In What Stage of the Business Life Cycle Does Seed Financing Occur?

Seed financing is a form of financing that is used to help businesses, their products, and services get off the ground. As such, seed financing is typically required and used during the first or the development stage.

## What Impact Does the Life Cycle Have on a Small Business?

Businesses of any kind or size are affected by a life cycle. This means that if a small business can experience growth and maturity if it makes a product or provides a service to its customers. It can also go into decline, which means the business could fail if challenges aren't properly addressed.

## In Which Part of the Business Life Cycle Does Facebook Fall?

Meta (formerly Facebook) may be in the maturity phase. This means that it may be heading into decline or stability, according to various sources, including GWS Technologies.

## The Bottom Line

In business, a life cycle is a sequence that mirrors biological life cycles, encompassing the birth, growth, maturation, and decline of a product or service.

Product life cycles are the most common and include the following stages: development, introduction into the market, growth, maturity, and decline/stability.

By understanding the sequence of events in a life cycle, investors and companies alike can make better financial decisions.

Life cycles apply not only to products or services but also to businesses, industries, and economies.

Companies can still be profitable during and after reaching their peak. Growth can still take place during the maturity phase of the life cycle.

Managing a product's life cycle helps a company in improving product development, enhancing marketing and sales strategies, and reducing errors or waste such as in packaging.

> **Article Sources**
>
> 1.  The Coca-Cola Company. "[Tab: 57 Years of Trailblazing](https://us.coca-cola.com/tab)."
>     
> 2.  The Coca-Cola Company. "[Coca-Cola Reshapes Beverage Portfolio for Growth and Scale](https://www.coca-colacompany.com/news/coca-cola-reshapes-beverage-portfolio-for-growth-and-scale)."
>     
> 3.  Virta. "[The global electric vehicle market overview in 2025](https://www.virta.global/global-electric-vehicle-market)."
>     
> 4.  GWS Technologies. "[Facebook Organic Reach in the Decline Stage of Its Lifecycle](https://www.gws-technologies.com/communication/facebook-organic-reach-decline-stage-life-cycle/)."