An Empirical Investigation of the Organizational Life Cycle

Four general phases appear to be common to all organizational life cycle models: 1. formation, 2. early growth, 3. later growth, and 4. stability. The major problems common to small businesses in each life cycle stage are examined using case reports submitted for 364 Small Business Institute clients during the period 1977-1989. The results indicate that external environmental problems decrease while internal problems increase over the life cycle. Planning represents the main problem for the owner or manager of a small business, particularly in relation to the initial business plan. Two marketing problems persist: 1. establishing and maintaining customer contacts, and 2. assessing and identifying markets. Location and expansion are major problems in 3 of the 4 life cycle stages. Once the firm starts to grow in the 2nd stage, setting up accounting records, recording information, and cash flow are major problems.