A small business expansion must begin somewhere. That beginning point may be challenging if you’re a business owner looking to boost profitability or broaden your clientele.
Would you start by adding more employees? What if you took too long and missed multiple chances to expand your company? A business strategy is a brilliant idea.
As a small business owner, you may wonder what steps you need to take to grow your company and where it is in the growth cycle. Although starting a business is a significant accomplishment, the bigger struggle is keeping it going (and thriving). Harvard Business Review has identified the five stages of small business growth in a historical and insightful article. Small business owners and entrepreneurs can better manage challenges and opportunities by being aware of these stages as their companies grow.
Five stages of small business growth and how to take advantage of each.
1. Existence: Small business entrepreneurs first focus on locating and acquiring clients and supplying goods and services. They are debating whether they can transition from a test/beta/pilot phase to being able to scale, whether they have the financial resources and cash, to meet all start-up needs, and whether they will gain enough customers and offer enough products/services to become a sustainable business. Companies that overcome these problems and continue operating are Stage II companies.
2. Survival: Businesses have now established the fundamental assumption of their business plans and have a genuine operating concern. Owners assess three things:
- Whether they can generate enough cash to break even and pay for repairing or replacing essential assets.
- Whether they can achieve cash flow break-even.
- Whether they can finance expansion to generate a profit from their labor and assets.
- The link between income and expenses is the key focus of this phase.
3. Success: The company has achieved financial health. The owners are considering whether to use it as a platform for expansion or support as they begin disengaging from the company. This is a critical juncture for the owners. As a result, the Success stage has two substage tracks.
4. Success-Expansion substage begins with the owner gathering all resources and taking certain risks. If this is the course of action, they will be concerned with keeping the core business successful while the organization transitions into a parallel phase of strategic planning and implementation.
5. In the Success-Disengagement phase, the organization should be able to sustain itself indefinitely, excluding changes in the external environment. The proprietors can use the operating cash flow “indefinitely” or get ready to sell or merge. The owner’s operational responsibilities are transferred to managers, who aim to maintain the status quo.
- Take-off: Owners currently have to decide how to expand swiftly and how to finance their expansion despite being in a position for growth. Managers are actively engaged in operational and strategic planning and are held accountable for their decisions. Owners must then consider structural and organizational concerns such as building the business and how much authority to give these managers.
The owner must frequently accept a high debt-to-equity ratio while enforcing aggressive cash flow and spending management strategies. Failure at this stage often results from trying to grow too quickly, running out of money, or being unable to transfer authority to a management team efficiently.
- Resource Maturity: The business has the personnel and funding necessary for in-depth operational and strategic planning. All required mechanisms are in place, and it has a decentralized management structure with senior people with experience. There is a significant separation between the owner and the company, both financially and operationally. As long as it stays away from what the study refers to as “ossification,” the business can continue to expand and succeed if it can carry on as it has and keep its entrepreneurial spirit.
Ossification happens when innovation stagnates, and the company culture starts to discourage taking chances, both of which are prevalent characteristics of organizations as they expand. The secret is to keep a flexible culture aware of the market and environmental changes and has an organizational structure and rewards adaptation.
The five stages of small business development are starting, surviving, succeeding, taking off, and reaching resource maturity. Consider these actions and apply them to your company to see what you need to do to get past your current stage to expand your firm.