The Five Stages of Small Business Growth

Before knowing the five stages of a small business, one must understand what it means. And what does one mean by its growth?

Small businesses are those found on every other street corner where we make most of our purchases. A small business has a very special position in the industry because of its power to generate employment and use the labour properly.

Small businesses differ from each other concerning size and growth capacity, yet they have the same characteristics, such as independence, varying organisational and management styles. Although they differ so much, there are five stages of growth common to all small businesses.

Let’s understand each stage in detail.

1. Existence

The very first stage of growth of small businesses involves their existence. Here in the first stage, the main issue is of customers and delivery of products and services to the customers.

Before starting a small business, one must understand the demand for the product or services that are going to be provided by small businesses.

Therefore, one should also keep in mind that he/she is getting enough customers. Can he/she deliver the products? Are there enough funds to meet the huge requirements in the starting phase?

During this phase, the aim of the small business should be to simply remain afloat. The companies in the existence stage range from newly opened retailers, cloth stores, restaurants, etc. When companies are in this growth stage, they tend to gain very few, or insufficient customers or the product or service that the company sells doesn’t meet the customers’ requirements properly.

Therefore, many companies or small businesses quit after stage 1 itself, but those who remain in business go to stage 2 of growth, i.e., the survival stage.

2. Survival

If a small business has exhibited that it is capable of working as a business entity, only then can it reach the second stage of growth, i.e., the survival stage. Reaching this stage also proves that the small business has sufficient customers to satisfy their demands with products and services. The concern at this stage is merely not the existence but the relationship between revenue and expenses. During this stage of growth, there are some concerns about small businesses, which are as follows:

1. Can the small business generate enough revenue to cover the maintenance and repair of assets as they get used up?
2. Can the small business maintain the fluidity in funds to stay in business and also to pay the workforce?

During this stage, the business is still simple, and there are either very few employees, or the owner itself is the one working. Therefore, no one makes major business decisions. There is minimal development of the small business as well. Thus the major goal is survival itself. During the survival stage, the small business may grow in terms of size and profitability and move to the next stage. Some businesses grow a lot to go to the next stage, and some may earn only marginal returns. The latter may give up eventually after this stage.

3. Success

The decision that should be taken at this stage by owners of small businesses is to exploit a company’s accomplishments and keep it strong and stable. The main goal is to thrive on previous successes and continue just like that. In this stage, the owner can disengage from the business if the company has enough economic successes and profits. Small businesses can stay in this way for a very long time only if the environmental changes do not destroy the market niche.

A market niche can also be destroyed due to ineffective management.

On reaching this stage, one’s small business may also grow to require functional managers to take care of certain duties. The manager should be capable enough to take over the managerial duties but should not be of the highest calibre.

During this stage, there is sufficient cash, and it should be taken care that there is no cash drain so the company can withstand the hard times.

4. Take-off phase

After the success stage, the sole aim of the small business owner should be to grow rapidly and use enough funds to finance that growth. During this stage, certain questions arise again, which are as follows:

1. Can the owner of the small business give or delegate the responsibility to others properly? And is this a true delegation with proper controls on the performance of the workers?
2. The second question is whether the business can provide for the growth in demand and cash flow, which is not destroyed by inadequate control of expenses or bad investments due to lack of patience.

In this stage, the organisation’s tasks are divided into either sales or production. The managers must be very capable of handling the growing business. This stage is crucial in growth because if the business faces challenges, both on a managerial and financial basis, the small business grows to become a bigger one. If not, the company can be sold out for a price. It also happens that the business owners who try to bring the business to the success stage prove to be unsuccessful in the fourth stage as they try to grow rapidly and cannot give duties to the employees efficiently.

In this stage of growth, it may happen that the person who originally brought the business some success is replaced by voluntary or involuntary investors. If the business fails to become a big business at this stage, it may exist in a state of equilibrium.

5. Maturity of resources

The biggest concern of small businesses entering this stage is to control the finances brought about by rapid growth. The second concern is to retain all the benefits of a small business, such as flexibility of response. During this stage, the business must rapidly increase management force to eliminate the inefficiencies resulting from the rapid growth. This will also help to professionalise the company’s use of management force to make strategic plans and objectives. A business in Stage Five has all the financial resources to build strategic plans. If the business at this stage maintains the entrepreneurial spirit, that’s well and good, or else it finally enters the sixth stage, which is ossification.

Ossification is the lack of adequate innovative decisions, which leads to risks.

So these are the five stages of growth of small businesses with all the details. If you are someone who has amazing startup ideas but has no idea about handling a business, this is the perfect guide to understand the five stages of small business effortlessly that you can utilise when to start your small business next.

Also Read:

1) Which Companies Specifically Target Small Businesses for Business Growth?
2) What do Small Business Owners Need Help With?
3) Why Do Most Small Businesses Stay Small?
4) How to Get the Attention of Small Business Owners?
5) OkCredit: All you need to know about OkCredit & how it works.

FAQs

Q. What are small businesses?

Ans. Small businesses are privately owned corporations or sole proprietorships that have fewer employees or low annual revenue than a normal-sized corporation.

Q. Does one need a product plan in the existence stage?

Ans. No, a product plan is not necessary for the existence stage. All one requires during this stage is to make proper marketing planning and in-depth knowledge about the target customers.

Q. Does one need to produce new products or services in the survival stage?

Ans. No, one doesn’t need to produce any new products or services in the survival stage. One needs to have enough money to cover the costs of building new products after the Existence stage.

Q. Is there a need for financial management in the success stage of growth?

Ans. Yes, financial management, organisational development, and proper management of the growing management team are needed in the success stage.

Q. What is the biggest challenge in the maturity stage?

Ans. Controlling the considerable financial resource is one of the biggest challenges in the maturity stage. There will also be cultural problems in this shifting world as agility is crucial in business growth.