While small businesses are all different from one another, business experts have identified some things they have in common as they grow. Understanding the growth stages of a small business can help the business owner make better decisions with regard to expansion, debt, staffing and other important choices.
A Harvard Business Review study from 1983 lays out the five basic stages of small business growth. Although nearly three decades have passed since the study was published, the findings of its authors still ring true today. Consider these five stages and where your business may be:
1. Existence – In the beginning, there was a beginning. At the early stages of a small business’ life, its owners are out searching for customers and nailing down how they’ll deliver their products and services. In this stage, the business’ viability is proven, based usually on factors such as the owners’ capital, their ability to generate sufficient sales revenue and finding the right products and services to offer. If business owners can successfully answer these basic challenges, the business will move to the second stage of business.
2. Survival. Businesses that make it to this stage will have proven the basic viability of their business and will be up and running, generating revenue. At this point, owners will be in theprocess of determining whether they can keep revenues high enough and expenses low enough to get to a break-even point and later prosperity. Long term growth issues will also begin to be addressed in this stage.
3. Success. At this point, the business has become economically healthy, generating a comfortable profit margin. Business owners who have reached this point will likely begin asking themselves whether they want to expand the business or allow it to continue at its present level. Owners may also become less involved with the day-to-day operation of the business at this point, having created a command structure reliable enough to allow them to reduce their involvement and enjoy a steady income from the business with little intervention necessary on their part.
4. Growth. Business owners who decide to grow their business further at stage 3 advance to this stage. Owners are still involved in the business, and important decisions about new markets, debt burdens and competition with other businesses becomes a major focus at this stage. Another key issue is delegating more authority to a management team and structuring the management team.
5. Maturity. At this point, the business has grown and continues to make plans to continue to grow. The business may not be very identifiable with the original business at this point, as the owners may have divested their interest in the company and the business may be offering products and services far different from their original line up. A major issue for businesses in this stage is preventing stagnation in terms of innovation and the ability to react to changing business environments. Mature businesses often create a complacent corporate culture where boat-rocking and change are resisted, making them less able to adapt to changing circumstances.
By recognizing the growth stages of small business, entrepreneurs can better focus on the issues they need to be paying attention to, and better plan for their future and that of their company.