Five Stages of Small Business Growth: Where Are You Now and Where Are You Going?
Harvard Business Review published a highly influential article identifying the five stages of small business growth. These are the stages businesses go through in their life cycle.
You might have heard that 50% of all new businesses survive 5 years or more, and about one-third survive 10-years or more. In the 5 Stage model, failure can mean giving up or running out of money at an early stage. It can also mean failing to move on to Stage 3 – success – before the end of the business lifecycle.
The Five Stages of Small Business Growth
- Stage 1. Existence. Yes, the first stage of business growth is just existence. Studies have shown that more than 60% of American workers have a dream of owning their own business, but for many, it just remains a dream. A Stage 1 business may rely on one or two customers and capital from the owner and the owner’s friends and family. Keeping the doors open is the main job. The owner is in charge of everything and directly supervises employees. The problems at this stage are simple: getting customers and delivering the goods and services.
Stage 2. Survival. Once a small business gets past that first stage, it has demonstrated that there is a demand for its goods and services. There are enough customers to pay basic expenses and the company is moving toward profitability. While the Stage 1 business must either move to the next stage or close, a business can stay in Stage 2 for a long time. Mom and Pop stores that earn just enough to keep the business going and serve the needs of the owners may stay at this stage throughout the lifecycle of the business. Manufacturing businesses that produce goods but don’t get on top of distribution can stay at this stage, too.
Stage 3. Success. A stable, profitable business is a success. There will be managers in a Stage 3 business who take on many of the tasks the owners were responsible for at Stage 1 or Stage 2. Cash flow is not an issue for businesses in Stage 3, as long as they manage their funds with the inevitable rough times in mind. At this stage, the owners may decide to keep the business going to support them as they move on to another project. They may instead decide to push their business beyond Stage 3, or to sell it. They may settle in and stay at Stage 3, enjoying their business without the stress of the early years.
Stage 4. Take Off. A successful small business can take off and see significant growth.Key managers who can take on significant responsibility are essential for Stage 4. The challenges at this stage center on finding the right way to grow quickly and the right way to finance that growth. Without a scalable business development model, a Stage 4 business can grow itself into failure. This stage often includes a relatively high debt-to-income ratio. It also involves a lot of delegation. If this stage is successful, a small business can become a big business. If growth isn’t handled successfully, it may be able to fall back to Stage 3 and remain successful, or it may end up back at Stage 2, Survival, or fail completely.
- Stage 5. Resource Maturity. A small business at this point can remain in the small business category, taking advantage of the agility of a small business and continuing to grow. There is a solid managerial team in place, the company is profitable and has the resources to use strategic planning to best advantage. The company has established systems in place and the owner’s finances are separate from the company’s finances. The business is scalable and stable. The biggest challenges for a Stage 5 business tend to center on changes in the business environment – and the owner’s ability to keep up.
The Breakthrough Business Clinic
In Stage 2, Survival, the Breakthrough Business Clinic can help you work through the discovery process that will show you your ideal client, the ideal profitable products for that client, and the ideal channels to reach that client.
This knowledge can ensure that you put your resources in the right place to grow your company to Stage 3 — Success. For the price of an ad campaign, you will end up with a realistic, practical plan that will bring your business to Stage 3. This can be the difference between living the life of your dreams and staying in survival mode for years. The Breakthrough Business Clinic is just what you need to stabilize your business.
Is your company at Stage 3? Your stable, profitable business is poised for growth. Making the right choices of strategy and tactics now can turbo-charge your business and move you closer to a highly profitable sale or to Stage 5, a solid small to medium sized business with great prospects for the future. The Breakthrough Business Clinic will get your business ready for Take Off.
We sometimes see Stage 5 businesses, often with the second generation owners in place, that have faced changes – or failed to face those changes – and ended up back at Stage 3 or even Stage 2. The Breakthrough Business Clinic can turn these companies around.