While there are widely accepted models covering a variety of angles, our 5-phase model will focus on the business choices characterizing the business cycle. To maintain clarity and relevance, our framework deliberately excludes the decline phase. We will concentrate on growth-oriented strategies that empower companies throughout their development journey. We present the phases sequentially, however, businesses rarely evolve in a perfectly linear fashion. Our goal is to provide a good foundation to understand the challenges and opportunities at each stage, while fostering the adaptability needed to navigate needed people, technology or structure changes.
The 5-phase model builds upon principles from established management theories and aligns them with contemporary trends. Without detracting the utility of Greiner’s Growth Model, Levitt’s Product Life Cycle, and Peter Serge’s systems thinking, our framework emphasizes adaptability as a strategic necessity, reinforcing the need for businesses to anticipate and navigate change proactively.
The speed of today is unprecedented. In the past, businesses could progress through phases in the course of years. However, in a world of zero inventory, social media, instant updates, AI, and immediate amplification, companies can accelerate – or even skip -entire phases in a matter of months, weeks, or even days.
Phase 1: Starting with a niche and affirming viability
Developing a unique value proposition is crucial. Companies aim to develop a product or a business model that better meets customer needs. Such differentiation could include intellectual property, network effects, or specialized expertise that builds a defensible competitive edge. For new ventures, their agility is usually an asset. At this stage, creating a model that’s tough to replicate, whether through patents or unique component integration is vital.
AI can support this phase by identifying market gaps through advanced analytics and customer sentiment analysis, enabling businesses to refine their value propositions with data-driven precision. AI tools can also substitute and accelerate functions. For example, they can generate content in text or graphic format and automate certain processes and decisions through agent functionalities.
During this stage the primary focus is solidifying the company as a viable business. A company that starts from scratch, especially a small business, first establishes itself on its selected segment or market. Once stability is reached, it typically transitions to the next level of growth. These foundational steps collectively ensure that the company is poised to establish its foothold in a competitive environment.
Phase 2: Scaling up
Once the initial target market begins to plateau, the focus shifts to broader market participation and replication. This involves pursuing geographic, product, or market expansion. However, not all core markets faces saturation; businesses in sectors like luxury or artisanal products may sustain focused strategies indefinitely, thriving in their defined market niches.
During the scaling phase, AI-driven tools can optimize supply chain management, forecast demand for new markets, and personalize customer engagement at scale to drive deeper penetration.
At this stage, the key challenge is maintaining the essence, profitability, and quality of the business while reaching more customers, expanding personnel, and increasing coverage. When expanding globally, companies balance the trade-offs between brand/product consistency and localization. Companies also start thinking about increasing their customer share of wallet through promotions and the introduction of complementary or substitute products. Line extensions and brand extensions are common. Navigating expansion demands vigilance and preserving organizational culture and avoiding mission drift – critical components of enduring success. Excessive scaling in a saturated market can lead to diminishing returns, making strategic prioritization essential for sustained growth. These dual priorities ensure that scaling efforts enhance rather than dilute the company’s long-term vision.
Phase 3: Leveraging corporate advantages and scale
Maintaining agility and competitive knowledge is crucial for a market leader. To stay at the top, or sustain the growth trajectory, companies now leverage their built resources, first entrant advantages (if any), and developed processes and alliances. First-mover advantages depend on market factors such as technological speed or high barriers to entry, underlining the importance of understanding unique market dynamics.
AI enhances this phase by automating repetitive tasks and decisions, optimizing resource allocation, and delivering actionable insights from large datasets, enabling businesses to operate at scale without losing efficiency.
Thanks to their scale, companies have buying power with suppliers. They also gain efficiencies through process improvements and economies of scale. During this phase companies start to consider vertical integration or exclusive agreements to reduce costs and strengthen their position. These strategies, however, carry risks of overextension or reduced operations flexibility, which companies must mitigate. In some instances, companies also start building partnerships to speed up access to new target segments. Collectively, this phase represents a balancing act where size and agility work in harmony to sustain momentum.
Phase 4: Maturing and re-evaluation
As companies mature, they often realize they have grown too much or in the wrong way. This stage involves focusing on ROI to define areas of investment or divestment to maximize long-term growth. Divestment of non-core assets allows companies to channel resources into areas of strategic importance, thereby maximizing growth potential. Applying structured portfolio management tools, such as BCG’s Growth Share Matrix the McKinsey’s Three Horizons or the GE McKinsey Management Matrix, adds rigor to these decisions. Broader strategy evaluations can also take place, including modern versions of Porter’s Five Forces and Prahalad & Hamel’s Core Competency analysis.
In the reinvention phase, AI can accelerate experimentation, identify emerging trends through predictive modeling, and enhance innovation pipelines by rapidly testing multiple hypothesis at lower costs.
During this stage, employees and customers develop relationships with the brand and organization. Trust develops at levels that demand caring for relationships beyond direct transactions. Corporate responsibility initiatives are not merely ethical imperatives but strategic investments, often translating to enhanced loyalty, risk, reduction, and long-term sustainability. This blend of strategic and human-centric considerations helps mature organizations reinforce their foundations for future development.
Phase 5: Reinvention
Throughout all previous stages, companies have to stay tuned to trends and evolving customer needs, recognizing that preferences and the environment change rapidly. They must look ahead and invest to capitalize on future trends. In this fifth phase companies should also seek unseen business opportunities where demand could be created rather than fought over. Fostering innovation in resource-constrained environments can involve lean approaches or strategies partnerships. Partnerships with startups, universities, or other organizations can accelerate innovation efforts or offset the resource constraints that many businesses face.
Reinventing processes and updating technology to avoid obsolescence is an ongoing effort. This applies to products, overall business operations, and business models, including marketing, finance, and technology choices. Not every company has the margins to do significant R&D, but all companies need a minimum of it. When a it comes to trends and innovation, getting one big win entails doing many experiments and incurring many failures. Data-driven decision-making and rapid prototyping are crucial methods to improve the odds of success. Therefore, businesses should always keep an experimentation and innovation budget. Fostering a culture of innovation across the organization is the most critical piece given the speed of change of today. It will not look like it, but in innovation lies the longevity of the business.
Mini-cycles
The business cycle is an aggregate of multiple mini-cycles across products, each at different stages of growth. While some products experience exponential growth, others might have a more gradual progression, or even enter decline. These product-specific mini-cycles are not isolated; they collectively influence the overall trajectory of the business, requiring careful coordination to maintain a balanced growth across the organization.
Exponential growth typically occurs during the start-up phase or when launching a new product. At this time, the baseline is small, making every movement impactful and often yielding double-digit increases. As the product gains traction, these growth rates begin to stabilize.
Progressive growth follows when the baseline becomes larger. The same efforts that once produced exponential growth now result in smaller, incremental gains. These steady changes mark the shift to a more mature stage.
As companies manage an increasing number of segments and products, the complexity of monitoring and driving growth intensifies. These product-specific mini-cycles collectively influence the overall trajectory of the business cycle, requiring careful coordination to optimize growth across the portfolio. Leaders must master this balancing act while keeping two critical principles in mind:
- Garbage in, garbage out: Poor-quality data and flawed inputs can derail decision making.
- You don’t know what you don’t know: Awareness of blind spots is essential to avoid playing the wrong game or misreading the competitive landscape.
To address these challenges, companies rely on tools to stay close to the customer (research and customer panels) and to scan their adjustment to present and future realities, like the internal/external fit framework. These practices help identify opportunities, mitigate blind spots, and clarify priorities in the face of complexity.
While much of the business literature emphasizes a product’s fit with current and future customer needs as the foundation for success, this alone is not enough. Many first entrants or market creators fail to lead in the long term. True success lies in the orchestration and adaptability of the entire system around the product. This system involves elements like supply chain management, marketing alignment, and cross-functional collaboration, all working together dynamically to respond to evolving customer demands.
Finally, fostering product ecosystem cohesion is equally critical. This involves designing products that seamlessly integrate and interact with one another, creating intuitive and frictionless experiences for customers. Such cohesion ensures that individual products build upon one another rather than competing, offering users a unified and interconnected ecosystem. A well-set ecosystem guarantees seamless audience access and almost immediate scalability for new products. Companies that neglect the ecosystem early on find increasingly difficult to retrofit coherence into their product lines later, leading to missed opportunities and diminished customer satisfaction. A company is not to always the ecosystem orchestrator in the category, at times, it is just a savvy ecosystem participant.
Ultimately, the ability to adapt, orchestrate, and reinvent across all phases of the business cycle is what ensures sustained success in an unpredictable market landscape.
AI and ecosystem coherence were only mentioned briefly. However, it is worthy to underscore their criticality. AI is a force that cannot be ignored and it is currently in exponential high speed evolution. As Kartik Hosanagar, professor at the Wharton School of Business states, AI is a bullet train that will not stop and we better board. Today’s digitally enabled ecosystems open doors to reaching new customers and markets, and as Michael G. Jacobides and Ana Maria Oberlander et al. show, having a clear ecosystem strategy is now a requirement to compete in the market and to succeed in any company transformation.