The second part of our growth series concentrates on how businesses grow. In this article, we’re going to take you through the five stages of growth for small to medium sized businesses. We’ll give you insight into common problems and opportunities that arise in these stages of development, and discuss the importance of anticipating growth stages in order to plan for success and avoid any potential pitfalls.
The path to expansion isn’t always a smooth one. In fact, almost all businesses go through a distinct set of growth phases before reaching maturity, renewal or decline.
Planning for the future
Looking at typical growth cycles can be hugely beneficial for businesses planning for the future. Not only do growth cycles enable businesses to anticipate the challenges that are around the corner, they also enable business leaders to create informed, considered strategies to drive their business forwards. Some challenges, such as cashflow, are integral to every stage of growth. Others, like timely delegation and wise investments, are unique to specific parts of the cycle.
Whether you’re just starting out, you’re planning an expansion or you’re investing in new acquisitions, it’s well worth making sure you’re up to speed on the typical business growth cycle, its challenges and its opportunities.
These are the stages that you need to know about.
Growth stages: are they really that clear cut?
The growth stages that business go through are often summarised in five separate segments: existence, survival, success, take-off, and maturity. But of course, this summary is a simplified one. Many businesses will take a far more complex route to eventual success or failure. Some also promote a four-stage growth theory, with phases including startup, growth, maturity and renewal/decline. However, in this article, we’ll concentrate on the common five-part cycle, which gives a general view of how businesses grow and how companies can prepare for what the future might bring.
Stage 1: Existence
All businesses have to start somewhere. The first stage of growth is of course the existence phase. During this phase, a business will be introducing itself to the market, and attempting to catch the attention of potential customers.
This stage is fraught with challenges. Typical issues that businesses face during the existence stage are obtaining enough customers, managing supply chains properly and being able to provide the products or services that customers require, in an efficient way that meets their expectations.
Cashflow is also commonly problematic during this phase, as bootstrapping businesses will need to cover initial costs and invest for the future. Some companies, like ambitious startups hoping to dominate the market, will make considerable losses during this time. But these losses aren’t necessarily a bad thing – they may be a well thought-out strategy aimed at building awareness, market share, trust and loyalty.
Take a look at Silicon Valley’s famous ‘unicorn’ startups, for example. Coworking space company WeWork is currently valued at $47 billion, but it loses $219,000 every hour. In July 2019, Business Insider revealed that the company isn’t yet close to being profitable. Ride-hailing app Uber is famously following a similar growth strategy, as discussed in our previous growth article.
The existence phase ends in one of two ways. Either a business will burn through its startup capital and face closure or a sale, or they will have proved successful enough to move onto growth stage two.
Stage 2: Survival of the fittest
Businesses that move into the survival stage are viable business models. They therefore will have demonstrated that the company is worthwhile, that customers are willing to purchase products or services, and that there is a market for the items or services on sale. To reach this stage, a business will need to meet the expectations of its newfound customer-base and start building a loyal following.
As a business moves into the survival phase, its focus shifts to the juggling act of revenue and expenses. During this growth stage, businesses will need to work hard to make enough money to ensure that they break even, and soon become profitable if they aren’t already. Cashflow is the major issue here, and businesses need to ensure that they’re able to generate enough cash to make a success of their enterprise. Careful spending during this stage has the power to accelerate growth, or send a business spiraling into failure.
Stage 3: Success
Success is a stage that all new businesses hope to reach. Doing so is of course huge cause for celebration. But once the jubilations draw to a close, it’s time for business leaders to make more big decisions.
The vast majority of companies entering the success stage will immediately begin planning further expansion. This isn’t always the key focus, though. Some companies might intend to remain stable and profitable, rather than chasing bigger profits and a greater market share. Take a look at part one of our growth series to learn more about the advantages and disadvantages of ambitious expansion plans.
Stage 4: Takeoff
Companies that opt for expansion strategies will then enter the takeoff phase of the growth cycle. This is another potentially dangerous phase, where cashflow remains critical and the risks (and rewards) are considerable. During this pivotal stage, business leaders must delegate tasks effectively, and learn from any mistakes that are made.
Cashflow is crucial at all stages of growth, but it’s a particularly formidable challenge during the takeoff phase. Investment must be balanced with potential, and as a result a business must be prepared to manage increasing demand should its expansion prove successful.
The takeoff phase will dictate whether or not a company becomes a much bigger organisation, perhaps expanding into new markets, buying up competitors or investing in innovative new systems and processes. Should problems arise during this stage, a business may well move back into its stable success phase, plummet right down to the survival stage or fail entirely.
Stage 5: Maturity
Reach this stage and your business has arrived. Maturity means that a company has the resources it needs to operate strategically, and the experience and knowledge to innovate, push boundaries and impress consumers.
Businesses that have reached maturity will usually have decentralised management teams, and talented teams of personnel on hand to manage the running of the company. Therefore the business will be quite separate from the owner by this point, with responsibilities being delegated to staff. A business in the maturity stage will usually command a considerable share of the market and could even be a household name.
In conclusion, growth is a huge focus for many companies, so it’s essential that all business leaders fully understand all of the five stages of business growth. Of course, some businesses might follow a slightly different route to success, but a good understanding of typical challenges and opportunities that growth phases present can be enormously beneficial for businesses of all sizes – no matter which phase they happen to be in. Knowledge is power, as they say.
Now you know what the business growth cycle entails, it’s time to think a little more about strategy. In the next article, we’ll be talking growth strategies, and discussing some of the most powerful strategies that small businesses can use to expand. Keep an eye on our resources page for ideas, hints and tips that you could use to reach the next phase of the growth cycle.