Starting a small business can be an exhilarating, rewarding, and frightening experience. There may be a lot to gain, or a lot to lose. What are the stages of small business growth? Harvard Business Review conducted a study to identify key stages of small business development. In the article below, Tony Hai of Florida discusses these five stages.
Small business growth can be broken down into five distinct stages:
- Existence
- Survival
- Success
- Take-off
- Resource maturity.
There are several factors that contribute to the success or failure of a business.
Discover more about the five stages of small business growth and the key factors within each of them that help determine the health of the business.
The Five Stages of Small Business Growth
1) Existence Stage
In this stage, the goal is to attract customers, deliver products or services, and earn enough money to cover operating expenses. During this phase, the owner is deeply involved in all aspects of the business from planning, to supervising, to running the day-to-day operations. If the business depletes its funding without earning enough to continue operations, it will not survive.
2) Survival Stage
In this stage, the small business begins to balance profits and expenses. It still has few employees and while some decision-making may be delegated, most of the directives still come straight from the owner.
When a business has a strong enough customer base, it can get enough products and services out to turn a profit that is acceptable compared to its expenditures and time investments. It may then expand into stage three.
Some businesses stay in the survival stage for years, making marginal profits but never scaling profits enough for expansion. Eventually, owners may shut down the business to retire or move on to new ventures. Or they may be able to sell the business to break even or take a small loss.
3) Success Stage
The success stage is broken up into two categories: Success-Disengagement and Success-Growth. In the success-disengagement stage, the owner hires managers to run most of the business while taking a step back. In this stage, much of the money is saved during prosperous times to help weather times of hardship.
In the success-growth stage, the profits are largely reinvested, and loans are often taken out to further the growth and expansion of the business. The owner may risk it all and remains an active participant in all aspects of the company.
Whether the company can survive and thrive with its investments and the current conditions of the market will determine whether it reverts to the survival stage moves forward to the take-off stage.
4) Take-Off Stage
The main concerns in the take off stage are delegation and cash management. As the business grows, the owner will have to be able to delegate major operations of the business to trusted employees. The owner will have to be willing to accept that mistakes will be made and learn how to increase managerial effectiveness.
Cash becomes an issue as the company must continuously balance growth with profit. It may become necessary to take on large amounts of debt for business growth. If decisions are made poorly and profits cannot recoup this debt, the business may have major setbacks.
5) Resource Maturity Stage
This is the point where the business becomes stable in operational and strategic planning. Its resources are also stable. The owner has usually separated from the company. The business will likely continue to grow if it takes acceptable risks and stays current with market trends.
Final Thoughts on the Stages of Small Business Growth
There are five stages to small business growth. When starting a new business or checking in on the health of an existing business, knowing the five stages of small business growth can help determine where a business is in its development.