The five stages of business growth – where are you now?

OPENSEED Digital Consultancy

Way back in 1983 at about the time Bob Hawke became Prime Minister and Australia won the America’s cup, the Harvard Business Review released a seminal report about business.

In it they identified that no matter the industry or enterprise, all small businesses were subject to five distinct stages of growth.

In the years that followed, their insight has shaped the way business views opportunity, reinvents itself, and achieves success.

Here’s a recap of the five stages of business growth and how business operators can overcome the inherent challenges involved in each.

Different but the same

While on the surface every small business appears different, the Harvard Business Review argues all “experience common problems arising at similar stages in their development”.

“These points of similarity can be organised into a framework that increases our understanding of the nature, characteristics, and problems of businesses,” they argue.

“For owners and managers of small businesses, such an understanding can aid in assessing current challenges…It can help in anticipating the key requirements at various points.”

And their analysis reveals this…

Stage 1 – Existence

Existence is the exciting yet challenging period which symbolises the birth of a business enterprise. This is the stage where dreams begin to translate into actual day-to-day operation and hard work.

During existence the enthusiastic entrepreneur is likely to tend to most tasks themselves.

“The owner is the business, performs all the important tasks, and is the major supplier of energy, direction, and, with relatives and friends, capital,” Harvard Business Review explains.

Systems and procedures are non-existent, planning is minimal and the business is taking its first tiny steps to test whether it has the “legs” to succeed.

This is the time where the dreams of the entrepreneur are put into action. It is the stage where their involvement is essential to the business success.

At this stage the key tasks are finding, keeping and servicing clientele while expanding the customer base. For some it will be about transitioning from pilot production process to a broader sales base. And for all it’s a time when the start-up costs are high, involving an investment of time and considerable capital.

Existence, at its heart, is about creating a viable income stream, with many businesses failing after they exhaust their initial capital.

Stage 2 – Survival

Survival sees a business having achieved success in terms of viability, but it’s a challenging position where many businesses remain.

Here the business has sufficient customers, and the ability to keep them, but the real work lies in balancing revenue and cost.

Key issues become handling additional expenditure and moving beyond the break-even point. In the long-run the question becomes can the business draw enough income to expand beyond the survival phase to start earning real and consistent profit?

During survival, the business structure remains simple. The owner may be supported by a small, hand-selected team. The owner still remains synonymous with the operation, making all major decisions and personally directing their small team of staff.

Many businesses never move beyond survival stage. They are the small-scale operators who receive minimal profits based on their own hard work and input. Some of them go onto sell that business, others close when the owner retires.

For those that manage to generate enough income to expand, they shift to the next exciting and truly rewarding phase.

Stage 3 – Success

At this stage of business, the owner is enjoying a solid return, with healthy profits year-in, year-out. They have a comfortable client base and understand their position in the market.

Yet with success comes a choice to be made. Will the owner maintain the current level of profitability, perhaps enjoying time off and the option of embracing other pursuits? Or will they consolidate and look to take the next leap of expansion?

Many small businesses attain a level of success and elect to remain in this phase. It affords owners the opportunity to sell their business at a profit, or step back and allow the business to run under management. By this point the business will likely have significant staff resources including some management personnel in place along, with the systems and procedures to ensure a consistent business outcome.

Alternatively, the operator may embrace success and then opt for further growth. This sees a small/medium business take the leap into the larger realm.

Should they embrace further growth, chances are the owner consolidates capital and resources, and borrows against the business to make the jump.

Systems and procedures are key at this point, as is ensuring the business maintains the required income to service any loans. Naturally, the business operator remains highly active within the enterprise at this time. They still make all major decisions but have a staff structure in place to support their operations and delegate necessary tasks.

Stage 4 – Take-off

For any entrepreneur who had dreams of making it big, take-off is critical point where their wide-angle perspective begins to see the light of day.

Yet take-off is a critical and challenging turning point in any business journey.

At this point the owner will largely delegate tasks and seek the guidance of trusted management staff. Cash remains a significant priority funding not just day-to-day operations but anticipated growth. Meanwhile, planning is imperative, with milestones, KPIs and targets all needing to be met.

The organisation may also now be decentralised or divisionalised, with key managers responsible for each division.

By and large, the owner is now separated from the business, acting in the capacity of primary shareholder or CEO. Alternately, they may have opted to employ a company head to lead the growing enterprise.

This is the pivotal point where a business may transition from medium to large, but its success will be dependent on planning, expertise and the willingness of the entrepreneur to relinquish some of the control.

Stage 5 – Maturity

By the time a company transitions to maturity it will be stable, proven and experienced. It will have power and recognition in the market, but will not be without is own set of challenges. For the management team the focus becomes maintaining prime position while also keeping a watchful eye on competition.

They will need to remain vigilant to maintain their market share, with developing technology, innovation and diversity all continuing to play key roles.

The truth is, this is a point where many businesses stagnate. They rest on the laurels of reputation too fearful of changing what works to embrace opportunity. It’s at this point they become an industry stalwart, vulnerable to disruption.

If a company can maintain its entrepreneurial spirit, flair and hunger while enjoying its strong market position it will have the best chance of prolonged success.

Key takeaways

All businesses share common challenges and opportunities for growth, yet not all transition to or beyond success.

The outcome is partly attributed to the ethos of the individual but also reliant on the greater market forces at play.

Those businesses who understand their consumer, plan for a bigger future and implement the required systems and procedures have the best chance of traversing the business terrain.

Naturally this outcome is attributed largely to the goals and aims of the business operator, but many a successful, mature Australian business has humble beginnings at its core.

The upshot is, shoot for the stars, you may hit the moon, and the humble kitchen table is a fine place for the planning to begin.

About Openseed

At Openseed we work with business to achieve that next level of growth. We do so by creating intuitive websites and devising quality content strategies in a brave new digital age.

We get to the heart of your business message to help your business rank foremost on Google and at the front of your consumer’s mind. You can learn more about our services here or contact us directly to learn more about how we can help.