The growth of revenue throughout the course of a firm's life was laid out and developed by two finance professors at the University of Colorado at Boulder, J. Chris Leach and Ronald Melicher. Revenue growth matches their own structure of business growth itself and is largely inseparable from it. The aim of the model is to reach “maturity,” or “flat” revenue growth, which is identical with firm stability.
The development stage is really not, in itself, a stage in revenue growth but is necessary for any revenue to develop at all. The development stage is when sources of “seed” financing are sought. To do this, a new idea for breaking into a market is developed. “Seed” financing is those first few dollars necessary to convince others that the project is worthwhile.
Start-up financing comes directly from seed financing. It is the necessary loaned revenue to begin a business. Both development and start-up money are not strictly revenue, but are necessary for the business to begin earning cash.
Once the necessary financing has been found, the firm must survive its first few very delicate years. This is often called the “first round” of financing and requires continued support from banks. This is the period in which the firm is struggling to get its name familiar and break into its target market. Debt is almost always high in this stage, and profit is rarely realized.
If all goes well, a period of rapid growth results. In this case, the market niche has been found and properly exploited. Debt goes down slightly, but revenue increases make it very possible to carry it without negative effects. The business no longer requires banks for financing and often moves to investors and customers.
This is the final stage of revenue growth. It is the sign of a mature company that revenue growth is slight. Debt goes down because the firm is now a recognized entity that can attract whatever financing it needs. It is no longer a “new” firm but is a familiar name in the field, with its own recognized styles, strengths and weaknesses. It is not as if the firm does not grow, but it rarely does so rapidly. It is constantly consolidating and reforming its own place in the market.
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