1. The developmental or formative stage.

• This stage is often driven by entrepreneurial and innovative focus.
• The industry sales and earnings are usually small or possibly negative.
• Growth prospects are high.
• Competition tends to increase during the progression of this phase as other entrepreneurs recognize the market potential.
• High risks exist in this stage since there is uncertainty as to whether or not consumers will widely accept the product, and which firms will survive.
• Venture capitalists are often active during this stage.

2. The expansion or growth stage.

• This stage is characterized by rapid growth of both unit sales and profits.
• Market leaders tend to emerge due to consolidation and shakeout of weak competitors.
• Consumer acceptance broadens the market as the leaders improve the product.
• Risk in this stage declines due to increased consumer acceptance and customer loyalty starts to build.
• Companies tend to start to go public with initial public offerings (IPO).
• Companies tend to reinvest earnings therefore, little or no dividends are paid to investors, but return on equity (ROE) tends to be high.