It’s always good to know the stages of business growth. Read everything you need to know below.
Categorizing the different stages of a business’ life cycle seems meaningless when living in the moment. But on a larger scale, economic researchers have determined that businesses do go through the same general stages throughout their lifetime and that learning to differentiate these stages can help entrepreneurs and small business owners better plan, react to current circumstances, and pivot their business strategies in anticipation for the next stage.
While these stages are a constant for businesses all around the world, there is no timeframe for how long each stage should or will take. A business may be stuck in development for a decade before finally coming off the ground, or it will be started quite literally overnight. A business may expand steadily for thirty years or explode within the span of five years before maturing.
In general, businesses go through the following five stages:
This is the proof-of-concept This is the point every business goes through where a plan is formulated, partnerships are forged, resources are distributed, supply chains are identified and built, and production begins. This is the stage during which a business acquires potential customers and clients, builds its reputation, and tries to establish that it can become a viable commercial entity.
This is the survival A make-or-break stage wherein a business is no longer trying to define itself or become a workable business entity but must strike the balance between its revenues and expenses on the path to the next stage.
This is the stage of success. This is where a business must reap the benefits sowed in the months and years before and allocate the explosion in revenue wisely. Business owners here have the choice to turn the business into a means for them to continue profiting while divesting themselves from the venture – perhaps through a sale, or by moving decision-making to other members of a board – or to expand the business heavily.
For businesses that continue to evolve past their initial successes, this stage is one of expansion in some shape or form, through franchising, diversification, or international expansion.
In many models, this fifth stage is the final stage of a successful business. It is at this point that expansion slows and the company must have adapted in structure to maintain flexibility and efficient management, without losing the groundswell it gained during growth and expansion. At this point, a company will have the resources to undergo major operational and strategical changes if needed, made realizable by an experienced management staff, loyal customer base, and established and stable supply chains.
There is a sixth and final stage, depending on how a company is managed. But first, let us go into detail on each of the initial five stages.
The Developmental Stage
One of the most important relationships within any given business is the relationship between the owner, or business manager, and the rest of the business as an entity.
This relationship changes drastically throughout each given stage, with the owner becoming less involved, while effectively delegating responsibilities to qualified management as the business reaches levels unfeasible for one person or a single partnership to oversee.
During the developmental stage of the business, the involvement of the owner is at a direct level. They will be doing nearly all the work, from onboarding hires and helping on every level of the business to talking to suppliers, enticing clients, representing the brand, and trying to fight to prove the viability of their idea on the market. There are little to no systems to speak of during this business growth stage.
The Startup Stage
Once a business has gotten on its feet and is beginning to exist, it must survive logistically.
At this point, the business may have gotten a few employees, and there may be a separation in tasks between the promotion of a product or service, the execution of the product or service, and the distribution of the product or service.
At this point, a business may begin to develop departments, and jobs with distinct, individual responsibilities.
The big question is no longer: “can we attract any clients?” Instead, it has become: “can we attract enough clients to justify the costs of production and grow?”
The Growth Stage
Defining a business’ success can be tricky, because success may be in the eye of the beholder. If a company sets out to become a global force, then it may be decades before it becomes successful in the owner’s eyes, even after taking over local and regional markets.
But in an objective sense, the growth stage can be considered the point at which a company becomes successful in proving itself, not just in concept, but in practice. At this point, the company is self-sufficient enough that the owner can begin to think about disengaging from their managerial position, while still benefitting from the company’s growth.
The Expansion Stage
Past any initial successes comes the need to delegate on a massive scale. Once a business moves past growth, it goes into expansion. Here, one company might become multiple. One factory becomes ten. One headquarter becomes a regional office for a countrywide enterprise.
An owner’s involvement with the business remains important, but even more important is the need to delegate effectively, not just within an office, but across cities.
The Maturity Stage
Consolidating growth without losing the benefits of agile and effective management can be difficult. At some point, too many cooks will ruin the stew. Keeping management lean while continuing to scale production to meet demands is key. Who do you really need at the steering wheel?
A smaller team of managerial voices can mobilize quickly to make important decisions and steer the ship effectively. A whole room of middle managers can prolong critical decisions and miss windows of opportunity. Successful maturation is striking the balance between growth and agile, entrepreneurial management.
The Stagnation or Renewal Stage
The sixth, truly final stage for any business is one where it stagnates/ossifies or reinvents itself. Ossification is the process by which bones become hardened, and in much the same way, a company that loses its innovative spirit and becomes set in its ways will care more about risk assessment, steady growth, and minimizing losses, than disrupting markets, providing revolutionary value to the customer, or pursuing a grand mission and vision.
If a company decides to completely turn things around, however, it may use its considerable resources to reinvent and revitalize a market, invest in research and development, and be on the constant lookout for the next innovative idea.
There are a number of factors that determine what turn a company might take during each of these key stages of business growth. These include human resources, business resources, planning resources, and financial resources.
- Business resources include supply chains, customer bases, supplier relations, manufacturing and distribution.
- Planning resources include the means to gather, organize, and analyze actionable data from both the industry at large and the business itself, to continue to improve over time and remove inefficiencies.
- Finally, financial resources include working capital, equity, and the management of credit and debt.
A successful business must have an abundance of all four factors to continue to grow through each stage.