Decades ago Harvard Business Review did a study on the stages of small business growth and published the information in their magazine. The article is a valuable read and I highly suggest it for any small business owner, but I will overview the five stages in this post to give you the basics. It is a valuable tool for any business owner to have in their belt. By understanding the stages your business will encounter as you grow you will be better able to strategize and set goals for each stage. Any business owner who reads this will no doubt find themselves in one of these stages.
Stage 1 – Existence
This is the beginning of every business, where creativity is the focus and structure is minimal. Usually the company is relying solely on capital investments to fund this stage. The owner is the business. Everything relies on his or her decisions with generally a couple of subordinates for support. There is very little systemization in the business at this point. The strategy for any business in this stage is to create a good product or service and to create a customer and revenue base for it.
Stage 2 – Survival
If you make it past stage one, you have created a viable business. Many small businesses get stuck in this stage. The structure is still very simple. There may be one to two levels of employees below the owner, but the owner is still the central decision maker of the business and will struggle to get away. Systemization is usually very simple at this point with very little documented practices. The strategy in this stage is to survive! Increase revenues while keep the expenses as low as possible. Budgeting and forecasting is the key. Work to move from marginal profits to substantial profits so you can focus on things other than simply surviving.
Stage 3 – Success
You’ve made it when you hit this stage. Profits are good and covering daily expenses is no problem. You have plenty of reserves on hand. The structure is getting a little more advanced and the systemization is probably still weak. You have three choices. First, you can systemize the business so that it is self sufficient and you are not needed daily for day to day decisions. You could use your time and new found monetary success to look into other ventures. Second, you could sell and make a handsome profit. Third, you could choose to focus on growth.
Stage 4 – Take-off
Assuming you took the third choice you are entering the fourth stage. In this stage you take the successful business you have created and find ways to gain huge growth and expansion. The structure focus is now on divisions and a decentralized management. The owner becomes less required but still vital to the success of the business. The business must be very systemized by this point also. To expand, systemization is very important so that the business functions coherently throughout. The strategy is to expand and grow while generating enough cash to do so. The biggest hurdle in this stage is sustaining the cash to fuel the growth.
Stage 5 – Maturity
If you made it to this stage, you’ve come a long way. Your company is mature and stable. The structured is decentralized and well organized. You have great management and good talent working in the company. You have enough cash to handle downturns and to embrace new projects. The business is extremely systemized. The strategy in this stage is for management to maintain stable growth while maintaining the entrepreneurial speed and agility the company had in its earlier days. After this stage the company will most likely break out of the small business category and look for larger goals such as an initial public offering.
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