Video Transcript: The Corporate Life Cycle

Hello, welcome. We're going to discuss the corporate life cycle. So let's take a  look at the graph. You can see in the stage one startup, right? This is where we  are ramping up our operations, getting our our mix together, right? Our financing mix. How are we going to finance the company? Right in this stage, we have an  idea for a business that meets an unmet need in the market. So this is our  startup phase. This is where we are implementing the development of our  products, how we're going to market it, the strategy that we're going to  implement in the startup phase, stage two, young growth, okay, this creates a  business model that converts ideas into potential revenues and profits. So now  we are implementing our strategies, we are developing our products, we are  marketing our products heavily, and we are now in the young growth phase,  stage three, high growth. Here we are building our business, we're building our  brand, we're building our reputation. We're taking market share from the  competitors, and we're converting that potential into revenues through the  capturing of that market share. So now we'll see in stage four, mature growth,  right? We're growing our business continually shifting from losses to profits,  okay, so you can see how the trend line is growing over the maturity of the  business life cycle. So you can see in Stage Four mature growth, we're really  getting close to that maximization of revenues, right? So now, because we had  so many initial our initial investment was so large, and we probably had maybe  high leveraging, 65, 70% debt mix, we're now having to pay down that debt and  all of those other payables that put us in a negative position right now, as we  pay those down, we're shifting those losses that we were taking in profitability to  now being able to retain earnings as profits, reinvest or distribute as dividends.  So this is the maturity phase of the growth cycle here, and now we'll move to  mature stable, right? So now we've we've maximized our growth. Our revenues  are maximized, our costs are controlled, and now we are really trying to insulate  ourselves from new entrants into the market and maintain our current market  share, or potentially incrementally grow it more. But now we're sustained. We've  been in the business for a while, and we are generating positive revenues and  positive profits. So stage six is the decline scale down of your business as  markets shrink, so as the demand dries up for your products start to wind down,  maybe liquidating your assets. Hopefully you're debt free at this point so you can leave the market unscathed and reinvest in another opportunity. So let's look up  in this in the startup phase here. So an investment decision, you need to make  investment decisions here right investment needs vastly exceed the funds. So  we need capital to get started up, and we have an initial investment that we can  put down, but at the same time, we're going to raise money in the capital  market. So financing decisions, equity funding is optimal. We need to make sure that we can get as much equity into the pot as we can, so that we can minimize  the amount of debt that we bring on. Ideally, you don't want more than 50%  debt. In my opinion, sometimes you can get 70% leveraged if you are a mature 

company, dividend decision, no cash for dividends. So we don't have any  dividends here to disperse, because we're in a startup, we're not retaining any  earnings. So we need to wait to do that. Value drivers, potential market promise  in the product, trust in the founder. So we got to make sure that we are breaking  into that market, and we're penetrating the market quickly, efficiently and  effectively, so that we can capture market share from the competition inside that  market. So investor dangers, because we're in the startup phase, failure is high.  It's a big risk. So we've got to make sure that we manage our investments well.  In the young growth phase, investment choices are still abound, right? We still  are in the young growth phase. We're moving through start up. We're still getting operations ramped up to full scale, so we still have to make sure we only make  sure we're managing the money wisely, but very, very tight at this stage,  because we don't have a whole lot of room for error in the young growth piece of the cycle, primarily or entirely equity funded. We've already got our infusion of  debt capital. We shouldn't be going back to the debt markets to get more now.  We need to be raising equity funds through the sale of stock or maybe from  friends and family investors, things like that. So again, at this phase, no cash for  dividends new equity issues. So we are trying to issue new equity shares here.  We're trying to find sources of equity in the capital markets and fund our  operations that way. No, we're not ready for dividend distribution quite yet. Value drivers in the young growth phase, revenue growth, we want to continue to grow our revenue aggressively understand our target margin, making sure that we are maintaining our marginal cost should equal our marginal revenues to ensure  that profit is being maximized. So we need our investor dangers in this stage,  competition, weak barriers to entry. Many people can many firms and organs or  organizations can enter the the market very easily. Markets may close down  because it's a maybe an industry that's young and the demand shrinks or dries  up and there's no longer any ability to capture revenues, high growth phase of  the life cycle, internal funds start to catch up with investment choices. So now  we're starting to see some of that revenue being able to potentially be retained  in owner's equity, and we can maybe then just decide to start distributing some  dividends. Some debt capacity opens up because we've paid down our initial  debt position. Now we may be able to go back to the bank and ask for an  additional line of credit. So need for new equity subsides, and cash starts to  build up. We don't need any more equity investment. Our operations are running strong. Now we can take that cash and retain it. Value drivers, quality of growth,  operating margin, we need to continue to grow at a solid pace by managing our  operations efficiently and effectively and create greater operating margin  through that process. Low quality growth is an investor danger lagging profit  margins. So we've got to make sure that the management understands what the organizational goals are, and make sure that we are retaining the top talent so  that we can get those goals accomplished. Okay, so mature growth. Let's look at

the investment decision decisions in mature growth. So now we have internal  funds available exceed the investment choices. So now we've starting to see  positive profitability, and now we are paying down debts, and we are able to  retain more of that revenue into retained earnings after cost. So debt capacity  expands. We should have a lot of our debt paid down again. Now we should  have a greater capacity to bring on more debt if need be we may want to bring  on more debt if we are doing well enough to where we want to expand our  operation and grow because now we'll need new capital financing, and we'll  need the funds to make those investments. So now there's pressure for  buybacks and dividends, right? So a buyback is when a firm goes into the equity market and they buy back their own stock because they want to have that stock  price appreciation in their own portfolio, so that they can use that as excess  capital that they can use to fund their operation. So now, though, now  shareholders in this growth phase will demand dividends. Asset earning power  is a value driver. So now they should be positioned well in the market, and they  should be able to really capitalize on their assets and continue to drive their  revenue growth. So the value driver is the debt capacity. Hopefully they're very  lowly leveraged. Hopefully they don't have a lot of debt on their balance sheet.  Hopefully they can have room for debt, but let's not get into any more debt than  we absolutely have to. So. A cash return policy. Now we're going to the cash  return policy is the cash return to the shareholders, like I said earlier, they will  start to demand the dividend soon enough, because they are into a different  phase of the business cycle that allows it to happen. So the dangers of this for  investors is status quo management. Hey, we're doing great operations have  been awesome. Let's relax a little bit. Okay? That's why the board of directors  will stay on the CEO to keep pushing him or her, because they have the best  interest of the shareholders in mind. Let's look at mature, stable, right  investment decisions, few or no investment decisions or choices, because we  are already through the maturity, and we're going to be entering the decline  soon. So financing decision debt capacity exists, but shrinks as a firm becomes  smaller. So as we start to scale down operations, our desire or need for debt  becomes smaller. Dividend decisions in this phase as we continue to decline at  the end of the life cycle, liquidating dividends as the company shrinks, so we'll  start to rein in those dividends, offering less and less through liquidation value  drivers, liquidation precedes debt payout, so we're going to sell off our assets  before we pay out our bond holders in this decline phase, investor dangers,  distress, management, denial, distress, as far as financial distress, potentially,  maybe they've got way ahead of their selves as far as the liquidation is  concerned, and they haven't raised enough capital to pay down their debt, so  now that to file bankruptcy, and the management is in denial that we are in the  decline phase and they want to continue to hold on. So the narrative verse, the  numbers right stage one is the startup. The top management's job is to tell a 

compelling and plausible story with potential for huge profits. They want to make sure they can sell the idea of the company to potential investors, whether on the debt or equity side. Young growth, stay consistent in Word and actions with your  story, stick to your initial story. Continue to push that growth story and the, you  

know, the huge profits narrative, continue to push that so we can drive  investment in the high growth phase. We start delivering numbers to back up the story. Now we're showing results. We are proving that our idea was worthy, and  we are maintaining our promise in the mature growth phase. Keep your  narrative in sync with your numbers. Can now tell the story of how we got there,  why we're here, what we're going to do moving forward to maintain the growth  status, mature, stable stage five, adjust your narrative to reflect where you are in the life cycle. So if we're a mature, stable phase, we need to make sure that our  narrative reflects that, because we will be coming soon to the decline phase. So  in this phase, you act your age in terms of the narrative and choices. We need to be realistic with shareholders, with the markets, with our employees and our  management team, if we are in the decline phase of the life cycle.