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The Five Stages of Business Growth

The Five Stages of Business Growth

There’s no blanket way to define growth for a small business: does it mean increased revenue? Or growing your customer base? Whatever the answer, exhibiting growth in at least some areas is key to the health of your business and improves the chances of success in the future. However, it’s important that a business understands which stage it’s at so as to inform a strategy for growth moving forward properly. 

So, without any further ado, here are the five stages of small business growth. Every company will pass through these stages at some point if it can survive in the marketplace for long enough. The stage that your business is at will define some of the biggest challenges that you’ll have to face and show you the steps you need to take to carry your company to the next level. It’s also important to consider your position in the marketplace and the kind of business model you’re using to understand where you are on your growth journey.

1. Existence

This stage is where a business begins as the owners start conceptualizing their products or services and trying to establish their niche in the market. There will be staff apart from founders and key stakeholders, and there will be little to no business structures in place. Challenges at this stage will include:

  • Finding a need in the market that the products or services can meet
  • Establishing the demographic the products or services will appeal to
  • Deciding on a profitable business model for sufficient production and delivery
  • Working out cash flow and funding to get the business off the ground

Almost a fifth of all businesses fails in the first year, while the figure rises to 50% for five years. This is often down to a poorly conceived offering that hasn’t managed to find a market for itself. At this stage, the key challenge is figuring out if the business concept is sufficiently profitable to survive long enough to cover initial startup and operating costs.

2. Survival

Most businesses that reach the second stage will still be operating at a small scale with a leaner business model. They should, however, have grown a customer base that’s responding positively to their offering and providing enough revenue to meet operating costs. The core challenges at this stage will include:

  • Generating enough revenue to cover operating costs for the foreseeable future
  • Maintaining a financially sustainable business model
  • Eventually generating a net profit from the business

Businesses may fail at this stage because they’re unable to cover their operating costs due to an inefficient or overly expensive business model. Therefore, the main focus should be on developing enough stability to begin ensuring a profit. 

3. Success

While many businesses find themselves scraping by in the limbo of the survival stage for many years, the companies that manage to generate long-term profit then face the question of what to do with the extra net income that their business is earning. For most business owners and stakeholders, the question has two outcomes: they either funnel profit out as private income or decide to reinvest back into the business in an attempt to generate further growth. The main challenges at the success stage might be:

  • Tweaking business systems to ensure an ongoing profit
  • Hiring the right team to execute the business model properly
  • How to use net profits to grow the business further

Businesses that fail at this stage have usually failed to innovate their products or services to stay ahead in the market or no longer have a profitable business model, and so revert back to the survival stage. Businesses that aren’t interested in further growth need to focus on sustainability. However, should a business have ambitions for further expansion, the focus needs to be on finding new staff and sufficient capital to make expansion possible while remaining profitable.

4. Takeoff

Businesses that make it to the takeoff stage begin experiencing rapid growth in demand for their products or services, so successfully negotiating this growth for maximum profitability becomes the main challenge. At this stage, businesses tend to adopt a more decentralized model as founders and executives delegate the day-to-day business operations to negotiate the challenges of newfound growth. Some of the main considerations include:

  • Hiring the right people to ensure effective expansion
  • Internally managing the effects of rapid growth
  • Establishing a revenue pipeline to help finance further growth
  • Maintaining a business model that doesn’t overextend the company’s reach

This period of dynamic growth offers opportunities for exponential profit growth, but it can also find businesses overwhelmed by the growth in momentum without appropriate management strategies. Since business owners will have to direct their attention to long-term planning, it’s essential that a company can hire the right people to entrust the running of the business to, and who can bring valuable talent to help meet new challenges as they emerge. Companies may also court investors and venture capital to help underwrite future expansion while also spending more on branding and marketing to help cement their position in the market.

5. Resource Maturity

After the rollercoaster takeoff stage, a business is likely to find that its growth rate eventually stagnates. Having gained a strong position in the market, owners and executives must now focus on maintaining this position. Challenges at this stage include:

  • Making the fully matured business model as cost-effective and sustainable as possible
  • Keeping staff engaged as growth tails off
  • Innovating products and services to ensure the company’s offering remains relevant to the market
  • Looking for new markets to drive revenue up

Businesses that fail at this stage often do so because of complacency fuelled by their current level of success, as the hunger present in the formative days of the business ceases to drive innovation. However, the companies that flourish at this stage have made their business model water-tight while remaining vigilant to changes in the market and emerging opportunities. These businesses may also look at acquiring competitors or promising startups to help expand their market share.

The Bottom Line

Growing a small business is a matter of realizing what stage the company is in and then taking the appropriate measures to guide it to the next stage. Growth also requires an acute awareness of changes to the market and to the business model you’ll need to maximize returns depending on the stage you’re business is at: what worked during existence may not pay off at the survival stage, and recognizing the right moment to take the leap into expansion could mean the difference between failure and success.

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