The five stages of small business growth

Categorising the problems and growth patterns of small businesses in a systematic way can increase owners’ understanding of the nature, characteristics and challenges of business.

While small businesses vary widely in size and capacity for growth, they do experience common problems that arise at similar stages in their development.

For owners and managers of small businesses, an understanding of these common problems can aid in assessing current challenges and help anticipate the key requirements at various points.

Stage 1: Existence
At this stage, the main challenges of the business are obtaining customers and delivering their product or service. The owner usually does everything and directly supervises everyone. Systems and formal planning are minimal to nonexistent and the overall strategy is simply to remain alive.

Stage 2: Survival
Reaching this stage means the business is a workable business entity. It has attracted enough customers and satisfied them sufficiently with products or services to keep them. The key problem has shifted from mere existence to the relationship between revenues and expenses. Systems development is minimal and the major goal is still survival.

Stage 3: Success
At this stage, owners usually face the decision on whether to exploit the company’s success and expand or remain the same and keep the company stable and profitable. A key issue to arise is whether to use the company as a platform for growth or as a means of support for the owners.

Stage 4: Take off
In this stage the key problems are how to grow rapidly and how to finance that growth. In regards to cash flow, owners must determine whether there will be enough to satisfy the great demands growth brings. This is a pivotal period in a business’s life. If the owner rises to the challenges of a growing company, both financially and managerially, it can become a big business. If not, it can usually be sold at a profit provided the owner recognises their limitations. Often those who reach Stage 3 are are unsuccessful in Stage 4 because they either try to grow too fast and run out of cash or are unable to delegate effectively enough to make the business work.

Stage 5: Resource maturity
The greatest concerns of a business entering this stage are controlling financial gains brought on by rapid growth and retaining the advantages of small size. Businesses who reach this stage have the resources to engage in detailed operational and strategic planning. The business’s systems are extensive and well developed. The company has the advantages of size and financial resources, and if it can preserve its entrepreneurial spirit, will be a formidable force in its market.