Harvard Business Review 5 Stages of Small Business Growth
Harvard Business Review published a highly influential article in 1983 identifying the five stages of small business growth. These are the stages small businesses go through in their business maturity. The study was significant because in the past small business owners measured key indicators on BIG business models. It still has relevance in today's business world even though it is quite dated.
Small businesses vary widely in size and capacity for growth. They are characterized by independence of action, differing organizational structures, and varied management styles. When evaluating where a small business is in it's maturity, it becomes apparent that they experience common problems arising at similar stages in their development.
These points of similarity can be organized into a framework that increases an understanding of the nature, characteristics, and problems of businesses ranging from a small automotive repair shop with two or three minimum-wage employees to a $20-million-a-year computer software company experiencing a 40% annual rate of growth.
For owners and managers of small businesses, such an understanding can aid in assessing current challenges; for example, the need to upgrade an existing computer system or to hire and train second-level managers to maintain planned growth.
Categorizing the problems and growth patterns of small businesses in a systematic way that is useful to entrepreneurs seems at first glance a hopeless task. Small businesses vary widely in size and capacity for growth. They are characterized by independence of action, differing organizational structures, and varied management styles.
For owners and managers of small businesses, such an understanding can aid in assessing current challenges; for example, the need to upgrade an existing computer system or to hire and train second-level managers to maintain planned growth. It can also help in anticipating the key requirements such as time commitment for owners during the start-up period and the need for delegation and changes in their managerial roles when companies become larger and more complex.
IDEAS TO GROW YOUR BUSINESS
5 STAGES OF SMALL BUSINESS GROWTH DEFINED
Stage 1. Existence
Yes, the first stage of business growth is just existence. Studies have shown that more than 60% of American workers have a dream of owning their own business, but for many, it just remains a dream. A Stage 1 business may rely on one or two customers and capital from the owner and the owner's friends and family. Keeping the doors open is the main job. The owner is in charge of everything and directly supervises employees. The problems at this stage are simple: getting customers and delivering the goods and services.
Stage 2. Survival
Once a small business gets past that first stage, it has demonstrated that there is a demand for its goods and services. There are enough customers to pay basic expenses and the company is moving toward profitability. While the Stage 1 business must either move to the next stage or close, a business can stay in Stage 2 for a long time. Mom and Pop stores that earn just enough to keep the business going and serve the needs of the owners may stay at this stage throughout the lifecycle of the business. Manufacturing businesses that produce goods but don't get on top of distribution can stay at this stage, too.
Stage 3. Success
A stable, profitable business is a success. There will be managers in a Stage 3 business who take on many of the tasks the owners were responsible for at Stage 1 or Stage 2. Cash flow is not an issue for businesses in Stage 3, as long as they manage their funds with the inevitable rough times in mind. At this stage, the owners may decide to keep the business going to support them as they move on to another project. They may instead decide to push their business beyond Stage 3, or to sell it. They may settle in and stay at Stage 3, enjoying their business without the stress of the early years.
Stage 4. Take Off
A successful small business can take off and see significant growth.Key managers who can take on significant responsibility are essential for Stage 4. The challenges at this stage center on finding the right way to grow quickly and the right way to finance that growth. Without a scalable business development model, a Stage 4 business can grow itself into failure. This stage often includes a relatively high debt-to-income ratio. It also involves a lot of delegation.
If this stage is successful, a small business can become a big business. If growth isn't handled successfully, it may be able to fall back to Stage 3 and remain successful, or it may end up back at Stage 2, Survival, or fail completely.
Stage 5. Resource Maturity
A small business at this point can remain in the small business category, taking advantage of the agility of a small business and continuing to grow. There is a solid managerial team in place, the company is profitable and has the resources to use strategic planning to best advantage. The company has established systems in place and the owner's finances are separate from the company's finances. The business is scalable and stable. The biggest challenges for a Stage 5 business tend to center on changes in the business environment – and the owner's ability to keep up.
Running a successful business takes a lot of energy. That motivation can quickly dissipate, and that's when you need a reason and a vision to carry you through the storms of business maturity. In order to succeed, it is vital that you do the right thing at the right time with laser accuracy. Hiring a business consultant/coach will enable you to harness that passion to keep you moving forward with your true purpose to business success. I will partner with you to determine where you are now and help you to create an action map to get you to where you want to go.
My 360° business coaching and consulting approach will enable you to employ the successful methods in channeling that uncompromising vision to become a focused entrepreneurial leader.
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