**1.2 Incorporation of a new stage in the business life cycle**

In business theory, the introduction, growth and maturity stages of the business life cycle are established<sup>1</sup> ; however, based on the observations of the evolution of the companies, it is considered important to incorporate an additional stage**: the stage of business development**. In this period, the products are formed until the moment where they are incorporated into the company's sales, generating the first income. **Figure 2** shows this stage where the investments are mainly made, which will

**Figure 2.** *The stage of business development. Source: Prepared by the author.*

<sup>1</sup> From the concepts of product life cycle.

*The Life Cycle in Startup Valuation DOI: http://dx.doi.org/10.5772/intechopen.110765*

#### **Figure 3.**

*Investment and first income. Source: Prepared by the author.*

be extended over time depending on the business that is being developed, closely related to the type of innovation involved in the company's products. The incorporation of the development stage will make it possible to use the business life cycle in terms of the evolution of investments, its Income Statements and Cash Flows.

**The development stage** results in a series of investment flows until the company achieves a minimum viable product (MVP*)* that can be sold in the market. From this, the first sales and, consequently, the first income are achieved, thus starting the introduction stage of the business life cycle, as shown in **Figure 3**. Then the familiar stages of the business life cycle will follow.

#### **1.3 The development of revenue in a business valuation model**

For a company valuation process, it must begin with the projection of sales or income, since, as previously mentioned, these will define the construction and expected evolution of the Income Statements and Economic Flows, which are used in the two most widely used business valuation methods. According to Fernandez "to value a company with expectations of continuity, it is based on the discount of fund flows, with which the company is considered as a flow-generating entity" [1]. In this sense, for an existing company, income can be projected from the historical information found in the financial statements of past periods. However, in new companies such as startups, the evolution of sales or income must be built based on market studies or taking businesses from the same sector or with similar business units as a reference. The latter is typical of technological businesses in which this document focuses.

Thus, for example, we establish that after the **development stage** (between period 0 and 3) of the products of the startup being analyzed, sales of the product begin in period 4, which grow moderately during the **introduction stage**. It is expected that the market will accept the product from periods 9 or 10 and there will be high sales growth rates until around period 18 -where the **growth stage** would end- a period

with moderate growth rates is entered, establishing the **maturity stage**. This description of the business life cycle through the evolution of expected sales can be seen in **Figure 4**.

The products or services will be sold at the price or rate established according to market conditions, based on the products to be replaced or the market's willingness to pay. Consequently, the behavior of the income will be defined, which will have a behavior similar to the evolution of sales. **Figure 5** shows the evolution of sales and income, in a double scale Graph to appreciate that they have the same trend.
