The 5 stages of small business growth
Small businesses vary widely from brand to brand. Starting an online lead generation agency is wildly different than opening a brick-and-mortar hair salon. However, all small businesses follow the same five stages of growth.
Knowing these stages can help you anticipate challenges and plan for success no matter what vertical your business specializes in.
Stage 1: Existence. The first step in starting a business is bringing your idea into existence. In this phase, the owner is often the sole proprietor or has a few employees. Systems and planning are minimal or don’t exist at all.
Main challenges: Obtaining customers, delivering the product and keeping adequate cash flow.
Takeaway: In planning for the challenges of stage one, make plans for who your customers are, how your product will help them, how your product will be delivered and how you will get initial capital to start the business.
Stage 2: Survival. In the survival stage, the business proves viable. A workable product is drawing in enough customers to allow the business to survive. Systems and operations remain small and simple.
Main challenge: Revenue vs. expenses – can the business do more than break even?
Takeaway: In planning for the challenges of stage two, continue to focus on revenue. See where you can cut operating costs, improve profit margins and plan for scalability.
Stage 3: Success. At this stage, the business grows to a level that can support itself indefinitely. Profit margins are average or above average. The owner can now decide between two options: 1. Scaling the business for larger growth and success or 2. Stepping back to reclaim time and allow the business to function independently.
Main challenges: Creating systems and processes that allow the business owner to step back or scaling to bigger and bigger proportions.
Takeaway: In planning for stage three, have an idea of your larger goals for the business. This is the stage where major pivotal decisions can be made.
Stage 4: Takeoff. If you choose to grow your small business rather than take a step back in Stage 3, it can grow into the takeoff stage. This stage involves rapid growth and expansion which, if successful, will take your business from small to big.
Main challenges: Rapid growth requires more complicated business structures. Delegating, managing large teams, maintaining vision and cash are common challenges.
Takeaway: If you plan to grow your business from small to large, it may be helpful to find a business partner with skillsets for large companies if you do not have them already yourself.
Stage 5: Resource maturity. If a business succeeds past the takeoff phase, it becomes mature. In this phase, leadership is spread across several stakeholders, processes and planning are excellent and the business holds a sizable market share.
Main challenges: A larger size can make pivoting to shifting market demands slower and more difficult.
Takeaway: As a mature business, stay on top of market trends and be willing to make needed changes. Be a lifelong learner.
What stage are you in right now? What knowledge do you lack to move to the next one? Write them down and take actions in 2023.
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