The Stages of Small Business Growth

Back in 1983, an article published in the Harvard Business Review noted the similarities and differences between small businesses, and that even the most different of businesses followed the same growth trajectory. This growth is detailed in five steps: existence, survival, success, take-off, resource maturity. Each stage is characterised by a different set of problems that must be resolved in order to advance. Even though the report was written more than 30 years ago, the stages are still relevant in the growth of small businesses today.

Assessing where your own small business fits within the stages may be helpful in understanding the way your business can grow and what needs to be done to keep growing, and just how far you want to take your business.

Stage 1: Existence

When a small business is just starting out the main problems the business will face include drawing in customers and delivering the product or service as promised. Having enough money to make it through the existence phase will also be significant. At this stage the owner will be in charge of almost all facets of the business; they will oversee any staff (if any) there may be, and will be putting in all the time and energy, and capital, they are capable of. Companies that make a start on the goals of the phase, and are able to get off the ground, move on to stage two.

Stage 2: Survival

A business makes it to stage 2 once they have established that their product or service is a workable business entity that may lead to a profitable future. A business will now be concerned with generating revenue. A business may never make it out of stage 2, but can continue to survive; local bakeries or fish and chip shops are the perfect example of a business that can turn enough profit to survive, but will probably never have enough cash flow to finance further growth in size or profitability. A company that does make it to a point where they can generate the cash flow needed to expand, will move onto stage 3.

Stage 3: Success

Once a business makes it to stage 3 they are economically healthy enough to remain profitable within the market. They have reached a level of success that allows for more choice for the owner moving forward. The owner may choose to keep the company as a means of financial support while they disengage partially or completely, or may choose to use the company as a platform for growth.

At this stage the business will have grown to a point where many founders may not be qualified or experienced to remain in control as they were previously. Experienced personnel may instead take over parts of the owner’s role in order to keep the business running in a way that it will remain profitable. As long as the market remains steady and there is no in-company meltdown, most businesses will remain sustainable at this level.

If an owner chooses to use the company for growth, then consolidation of the business will be the next step, with the owner organising the resources needed for growth. The business will need to remain profitable during this growth phase in order for there to be capital for the expansion. The business will have plans and qualified personnel in place for what will happen after successful expansion. If successful, the business moves into stage 4.

Stage 4: Take-off

Stage 4 consists of rapid growth and maintaining revenue in order to finance it. At this stage the owner and the business may be quite separate, though the owner maintains stock control and are a key influencer of goals and growth. Instead, key managers will be in charge of operational and strategic planning and day-to-day operations.

Cash flow will be one of the main issues faced in stage 4, as the demand will be greater as growth continues. Success will be determined through the balance between growth and maintenance of expense controls. A company that fails in this stage may be able to retrench and remain a successful company or may fall back further in stages to a company in survival mode, or as a worst case scenario may fail altogether. A company that succeeds, however, will move onto the more stable position that stage 5 brings.

Stage 5: Resource Maturity

A company at this stage has the advantages that come with size, financial stability, added resources, and managerial talent. The main concerns are keeping up with the level of growth that the business has built, and controlling the financial resources that have become available to a company of this size. At this stage, the business and the owner will generally be separate entities, as more managerial staff are brought in. A company in stage 5 has the staff and financial resources for detailed operation and strategic planning and will continue to grow as long as they stay in touch with market trends.

Knowing what challenges your small business may face as it expands allows you to control how far you choose to take your business and the role you, as owner, will likely play.