Most businesses pass through a series of well defined stages. In the first stage a new company begins with a germ of an idea, tries it out, refines the products or services to the needs of the customers, and resolves start-up problems. This is known as the exploratory phase. Once a company has a successful strategy, it attempts to offer its products or services to a wide range of customers--expanding first to other states and regions and then often internationally and globally. This is the growth phase when successful companies can turn in increasing earnings year after year. Eventually, all possible customers have the product or service. They may still buy parts or replace their product with newer models, etc, but growth slows. This is the mature stage. Finally, the product gets replaced by a better product, new technology, or a competitor, etc. When that happens, sales can decline.
By being aware of product life cycles, well managed companies can often develop new products and services to continue growing their business over the long term. Such companies are usually called growth companies. Some businesses lend themselves to a steady requirement for the product or service even in the mature stage. These businesses tend to be cyclical. In some circumstances prices will be high and their products will be highly sought after; at other times their product might be out of favor.
Related Fool Articles
Recent Mentions on Fool.com
- What Siemens' Results Mean for General Electric Company
- Merck & Co.'s Cholesterol-Buster Program Isn't (Yet) an Exercise in Futility
- The Dividends of Understanding Dividends
- 3 Recent Oil and Gas Discoveries You Probably Missed
- How Much Should You Save Up for Christmas?
- Which Alternative Energy Is Your Best Investment Opportunity?