More than three decades ago, researchers developed the “five stages of small business growth,” a framework to help them study and understand the nature of and problems inherent to business development. For business owners’ intent on growth, however, the five stages are not merely some academic exercise. After all, if you want to take your business into the next stage of development, you need to understand where you currently stand.
Here are three tips for using the five stages to take your business to the next level.
Understand the Stages
Every company moves through the stages at its own pace, but most follow a similar path to growth. The traditionally recognized stages of business growth include:
- Businesses in this first stage are relatively simple organizations in which the owner executes most of the tasks and directs the actions of subordinates. The main concerns during this stage are obtaining customers and delivering products and services.
- At this stage, a business is established and has a base of customers. It is able to provide the products and services necessary to keep those customers. But revenues are not yet able to fund exponential growth and the major goal continues to be surviving. The owner is still very much involved in the day-to-day operations.
- When a business reaches this stage, it has achieved stable revenue, which allows the owner to decide whether to use the business as a platform for further growth, or as a means of support so the owner can disengage partially or completely from the company.
- Take-off.At this stage, the business has grown substantially and achieved significant size, financial resources and managerial talent. Now, the main concerns are how to grow rapidly and how to finance that growth.
- Resource Maturity.A businesses that has reached this stage is usually focused on consolidating and controlling the financial gains brought on by rapid growth. To continue succeeding, the business owner or operator must also focus on evolving operations to work more efficiently and effectively.
Where Is Your Business?
As critical as it is to understand the five stages, it’s just as important to know where your business is in this trajectory. Awareness can help you determine how to succeed at the current stage, what it would take to get to the next stage and whether you even want to try.
Take time to analyze your company’s primary risks, concerns and staffing needs in order to determine your current stage. Think about your financial management, strategic planning focus, the degree to which you’ve established business systems and your own involvement in the day-to-day operations. Look at the small business development model created by Neil Churchill and Virginia Lewis and find the stage that most closely resembles your current challenges and successes.
Should You Move Ahead?
Every small business can become large—or stay small. Usually, the difference depends on the owner’s risk preference and level of ambition. Once you understand the stages of growth, you can look objectively at your business and determine whether you want it to grow. Start by asking yourself questions such as:
- Am I comfortable with the amount of effort I currently put into the business?
- Am I comfortable with the level of rewards I currently receive from the business?
- Do I want to continue to be involved in the day-to-day operation of the business?
- Am I willing to invest more time, profits and energy to yield greater rewards?
If you’re happy with your current level of growth, there’s no shame in maintaining the status quo. But if you think your business is ready to catapult to the next stage, you must first take a hard look at your own capabilities and those of your company. To grow, you may need leadership assistance, additional staff, supply chain, cash flow, growth financing or other capabilities.
Finally, once you understand the fundamental components your business will need to move to the next step, develop a strategic plan to get you there. Think about launching a certified supplier program, assessing your competition and potential markets and developing a detailed customer profile.
Regardless of the stage your business is in, achieving success in the next one will come down to three critical variables: preparation, preparation and preparation.