The stages of business growth

The growth of a business typically occurs in stages, and each stage comes with its own set of challenges, opportunities, and strategies.

It’s important to know that there are multiple different schools of thought, theory, and styles to identify the stages of business growth. Most of them, however, follow similar structures in their approach. We often see that the stages are consistent with all types of businesses and industries, but the characteristics of the stages may look different depending on the company. Each company has a unique identity; therefore, it requires its own set of implementations and strategies to get it from point A to point B. We also know that businesses from different industries will hit the stages of business growth at different points, and have diverse revenues, or classifying features of that stage. Some businesses may skip or repeat stages depending on the industry, market conditions, and internal factors. Additionally, successful businesses often engage in continuous innovation and strategic planning to navigate changing environments.

For example, here are the typical revenues you’d expect for these different businesses based on their industry alone. Despite being considered to be at the same level or early stage of business development, you can appreciate how these different companies would require different interventions to get them moving forward to the next level of growth and new size.

From a neighborhood restaurant with a small five-person waitstaff to a $15 million home services company, small-medium size businesses of all types experience the same stages of business growth. These growth phases are:

• Existence
• Survival
• Success
• Take Off
• Resource Maturity

You can see from the chart below how these stages are laid out with respect to the age, size, and complexity of the organization. This cycle can be repeated over and over again through different growth cycles that a company may experience. We’re going to explain what each stage consists of so that you can build your awareness of the growth cycle and use it to coordinate and plan your strategy.

The lifecycle of a business

Stage 1 Existence

Stage 1 Existence can also be thought of as ‘The Startup Stage’ for any business. This is the time when a business idea or plan turns into a reality. After planning a means to provide a valuable product or service, a company can be created with the aim of creating a solid foundation of revenue. A business owner or partner should be focused on obtaining their first, new clients, developing a business identity, and stabilizing the cash flow. They should also be asking themselves the following questions to ensure that the existing business is viable:

• Are we able to find enough customers, deliver our products, and provide service well enough to be a profitable business?
• Are we able to expand from our key early clientele to a broader sales base?
• Do we have enough capital and cash resources to support this startup phase?

Businesses in this phase are straightforward enough in the sense that the owner(s) can carry out most if not all of the tasks and may hire out or use contractors that they directly supervise. The business lacks formal systems and processes – they are either minimal or nonexistent, and the main focus is about getting through each day.

This time for a company is considered to be the riskiest, and many companies don’t make it out of this phase as ownership fails to receive an appropriate return on time, energy, and financial investment. Business owners can become reluctant to invest any more if they have not seen enough of a return on what they have already done.

Stage 2 Survival

Once a business begins to establish a stronger client base, they move into phase two, survival. The business has proven that they have a profitable product or service and can look to continue to solidify and strengthen their offering. The business is still largely operated by its owner, though it may have a small number of staff that are there to execute some of the actions that the owner is stepping away from. The business is still defined by its ownership and there are minimal systems and processes in place.

Companies that are in the survival stage remain vulnerable as they could remain here for extended periods of time, earn marginal returns, or become unviable due to other factors in the market. The growth key for a surviving business to move it toward the success stage is to:

• Establish standard procedures.
• Create a strategy to recalibrate your business plan and fit current needs.
• Financial analysis – what is the revenue and expense relationship like?
• Reinvest profits into emboldening your marketing and branding.
• Outsource repetitive, time-consuming, and non-essential activities.
• Continue to explore business growth opportunities.
• Hire and delegate authority and responsibilities to trusted employees within the company.

These steps can be difficult for business owners to take as they may feel the real pressures of running a day-to-day operation and struggle to see the opportunities where they have the time, energy, and resource to implement these steps. During the startup period the owner effectively takes on too many roles and responsibilities to get the business viable and established. However, the survival to success period is a time for transition. It can be hugely advantageous for an owner to delegate responsibility to trusted members of the team. It gives the owner more time to focus on the core aspects of running and maintaining the business. We know from experience at The Service Strategist that these steps are the most crucial in terms of allowing a business owner to gain time, energy, and resources which gives the business the best chance of being successful.

Stage 3 Success

A stage three business has reached a certain level of success which is characterized by having a proven viable business model, consistently gaining new business, retaining existing business, and having systems in place. At this stage, the business will experience rapid growth in its size and complexity whilst maintaining stability and a steady cash flow. The business has generated some authority within its market; it has control over its client base and owns a valuable amount of market share. The organization is somewhat protected from the risk of competition with smaller players and startups. You may find that the business draws attention from longer-established players in the market that have reached business maturity.

The company is less vulnerable than at its earlier stages, but it still requires effective ownership to make important decisions that keep the company on the correct course. Your primary objective as an owner is to ensure that the revenue doesn’t stagnate or fall into decline – you must continue to drive growth.

Growth is achieved through continuous expansion of delegation giving the owner more and more time to focus on steering the direction of the business and ensuring that it remains on course along the way. There are two main paths that a stage three business can take; the business can continue to grow and expand by using the company’s achievements, or the company can remain sustainable and profitable while the owner reduces their involvement in the day-to-day operations. A business owner may consider the following avenues to expand and grow the company:

• Explore new markets – is there a demand that you’re currently not meeting?
• Joint venture or partnership opportunities
• Focus on research and development to improve your products and services.
• Build on customer loyalty to increase profitability and secure income.
• Consider the benefits of selling the business, merging with another company, or acquiring another company with a different product or line of service.

When a business reaches this stage of development, sometimes company owners realize that they’d like to take a step back and spend more time with their family. In other cases, they may feel inspired to start a new business venture which almost comes instinctively from the knowledge and experience that they have acquired from their current business. Owners must determine if they are going to use their successful business as a platform for growth and expansion or as a support structure for further undertakings. Remember that even as a successful business, an owner cannot afford to take the foot of the gas. They still need to ensure that the company is in good hands, and to seek out opportunities to continually expand and grow.

Stage 4 Take Off

Assuming that a business owner of a successful company decides to keep growing and expanding their opportunities, their business may move into stage four, and take off after identifying expansion routes.

The main challenge with stage four is homing in on how to grow and develop quickly and manage the finances and resources to support that growth. A business owner concerned with expanding to take off will be focused on two aspects of the company: delegation and finance.

The delegation of the business should reach optimal levels, with enough employees and human resource systems in place so that the workforce can be self-managed without much involvement from the owner(s). Owners must have confidence that they can delegate tasks as the company becomes progressively complex and demands increase with the size of the business. They need to have departments and divisions between key functions such as sales and production.

Similar to stage three, the company is at a pivotal stage whereby the ownership has some very different options on the table, these include:

• If the business grows well, it could end up in big business.
• The company may scale back and become a sustainable, smaller company.
• Company is sold off.

The best approach for a business owner in this situation is to gain as much information as they can before they make their key decisions. By now, all of their decision-making should be evidence or information based so as to ensure that they are not making decisions with very real and life-changing consequences out of thin air.

Stage 5 Resource Maturity

A mature company is one that is well-established in its industry with a well-known product or service and a loyal client following. Businesses that have reached the maturity stage of development will have successfully scaled and are now able to turn their attention to strengthening their revenue and income streams from rapid expansion and maintaining the adaptive, young spirit.

Since establishing your business, market conditions, client behaviors, and purchasing habits have undoubtedly shifted. Your organization’s response to these changes’ matters, leading to adaptation and evolution or decline. Mature companies have done their strategic planning, have a capable management team, and have separated ownership from the company, both financially and operationally. 

It’s important to point out that not all mature companies are large companies. Many small companies reach their growth maximum quickly and essentially stay as small, mature firms. A few growth companies have extended periods of growth before they reach stable growth.

The biggest risks of companies at this phase are entering a low-risk state and becoming complacent with the company’s status as well as neglecting innovation in the process, a state called ossification. Mature businesses must remain adaptive, anticipating market changes and using their market share to affect market changes. 

The Bottom Line with Business Growth

Regardless of the type of business you operate or its current growth stage, you must always focus on long-term goals and keep your strategies renewed. Surviving the first two stages of business growth takes time, effort, dedication, endurance, and resources. Once established, you must build on your success to strengthen your core offerings and maintain your client base.

The key to long-term growth is effective management. After the maturity stage, every business will risk going into decline. Therefore, it is vital to pursue new opportunities, keep up to date with industry trends, and keep your workforce happy and engaged.