The 5 Stages of Business Growth and Strategies for Success

The 5 Stages of Business Growth and Strategies for Success

Businesses are a lot like people. They, too, go through different phases during their lifecycle. Businesses and humans share stages of birth, growth, maturity, and death or renewal. 

And though the jury’s still out about how many stages there are in the business growth lifecycle, there’s one universal truth: understanding these phases of business growth helps you plan for challenges and opportunities both now and in the future. Let’s take a look. 

More than three-quarters of small business owners want to grow their business locations or expand into new ones. Only 7% want to sell. (source)

What Are the 5 Stages of Small Business Growth?

The stages listed below gives you a clear picture of what to expect during each phase of business growth. When you can anticipate challenges and opportunities, you can account for that in resource planning and allocation. 

Below are the five stages of small business growth: 

1. Idea development stage

The idea development stage comes first, and this is when you first identify your growth opportunity. You’ve brainstormed and vetted the top ideas. Now, it’s time to solidify what that idea is and how it will take form. Some also simply call this the development stage or the seed stage. 

Challenges

Many businesses face the following challenges during the idea development stage: 

  1. Idea validation: It can be difficult to feel confident in your idea if you’re unable to objectively analyze its feasibility. 
  2. Prioritization: Sometimes you have so many growth ideas and opportunities that it’s hard to choose which is the best. 
  3. Team buy-in: If you have employees or partners, they may be weary of extra work or capital required to kickstart your growth ideas. 
  4. Profitability: At this stage, you’re not even making sales yet. So cash flow is very top of mind, and it’s hard to know if you’re going to be able to sell your products or services at a profit. 
  5. Logistics: During the idea phase, you have to do the administrative work. This work involves setting up your business entities, bank accounts, licenses, and other important but tedious steps to legitimize and protect your venture. 

Strategies for Success

  1. Validate your ideas to ensure there’s a market for your new product or service. Survey your current customers, do a beta release to a small group of trusted customers or friends, and conduct market research to get to know the industry and competitive landscape. 
  2. Prioritize systematically. Renowned sales training expert Brian Tracy recommends the 80/20 rule, or Pareto Principle. It “states that 20 percent of your activities will garner 80 percent of the results. So, focus on the 10 or 20 percent of activities that will most positively impact your business.”
  3. Get your people involved, early and often. Even if you don’t have official employees or partners, you need a support system. Your support system could be friends, family, colleagues, peers, fellow entrepreneurs, and anyone else who wants to see you succeed. 
  4. Crunch the numbers. While future profits are virtually unknown at this point, you can rest assured knowing that more than three-quarters of small businesses are profitable. Profitability is easier to achieve when you’re intentional about pricing, bookkeeping, and small business accounting
  5. Use a checklist to ensure you’ve covered all the important steps. Don’t be afraid to hire specialists if you have complicated needs. Small businesses that operate heavy machinery or sell edible goods have more logistical challenges than a small business selling t-shirts. 

2. Startup stage

Arguably the most impactful and challenging stage of business growth is the startup stage. This stage is when you first launch your business to potential customers. You’ll reveal your branding, your products or services, and potentially your first physical location. This stage is the most important for building brand awareness, excitement, and buzz for your business. 

Challenges

  1. Things go wrong: Every new business needs time to work out the kinks. You’ll find out which processes work, which systems need tweaking, and where you might need to go back to the drawing board completely. 
  2. Scarce finances: Though most small businesses are profitable, that doesn’t come without challenges. In fact, “lack of capital or cash flow” is one of the top two problems small businesses face, according to one survey. Money can be tough at any stage of business growth, but especially during the startup phase. This is when you bear the most upfront costs and the least amount of income at the same time. 
  3. Hiring: Another challenge for small businesses is recruiting and hiring. In fact, this challenge has “increased 22% since last year.” Every hire is so important for startups because these individuals have such a huge impact on so many areas of the business. Finding top talent who can wear many hats is a tall task at this phase of business growth. 
  4. Sales forecasting: Without historical data, it’s hard to predict the future. This makes virtually every business decision difficult, especially as it pertains to planning. 
  5. Customer acquisition: The startup phase is the most important for customer acquisition. It’s important to not only attract new customers, but also deliver a positive, lasting impression that will make them tell their friends and come back themselves. 

Strategies for Success

  1. Be adaptable. It’s important to be open to feedback and change during the startup stage. This will not only help you optimize your business, but also show customers that you’re listening and taking action. 
  2. Look for funding options. Small business loans saw 14% growth year over year, for example. Some small business loan alternatives include merchant cash advances, crowdfunding, and asset-based lending. 
  3. Be creative with recruitment. Go virtual, for instance — according to one LinkedIn survey, 58% of respondents believe many in-person interviews have been transformed to virtual as a result of coronavirus. The best tactics all depend on who you’re trying to recruit.
  4. Find data where you can. Look for benchmark data, third-party research, and public-facing competitor metrics, for example. Leverage tools and technology that can automate forecasting for you, taking both internal and external data points into account. 
  5. Ask for feedback from your customers and then show how you’re listening and responding to it. If you have several requests for a new service offering, put those individuals on a list and send them an email when you’ve launched the service. They’ll appreciate feeling heard and also trust your business. 

3. Growth and establishment stage

You’ve worked through the bumps and bruises, and now your business is cruising along. You’re generating sales, you’re making a profit, and your customers are happy. You’re starting to recoup some of the losses from the startup stage, and you’re able to pick your head up and start thinking more actively about the future.

Challenges

  1. Prioritization: Again, you might have so many ideas and opportunities at this phase that it’s difficult to discern which ones demand the most resources. You also have more data that gives you more ideas.
  2. Maintaining focus: Growth is exciting, and it’s important to enjoy it. But it’s equally important to stay focused — as it’s easy to get wrapped up in the excitement of your success at the detriment of your business. 
  3. Staying competitive: Complacency is a real threat. If you hit a plateau, you might find yourself overtaken by a competitor who seized an opportunity before you even had a chance to notice it. 
  4. Customer retention: Once you’ve already won customers over, it’s important to keep them back. It’s easy to keep trust than to win trust, but when you’re focused on growth you can lose sight of the customers who helped you get here. 
  5. Employee retention: Just like your loyal customers may be tossed aside, it’s easy to forget about the workers who have been with you from the beginning — as well as keep the new recruits engaged. And with more than half of workers leaving jobs for new ones, it’s important to find ways to keep your best people. 

Strategies for Success

  1. Prioritize again according to the 80/20 rule. Use more data inputs and customer surveys to further inform priorities. 
  2. Focus on the most impactful activities. Rather than bogging yourself down with everyday administrative tasks, look for ways to delegate. Delegating will give you more time and headspace to gain focus and clarity. 
  3. Stay on your toes. Beyond keeping an eye on your competitors, encourage your team to contribute to overarching business growth goals. Empower them with the information about your vision for the company and the resources to refine and pursue their ideas. 
  4. Focus on customer loyalty by providing exceptional customer service, rewards programs, and personalized experiences. 
  5. Pay well when you can. One of the top reasons companies have difficulty finding and retaining talent is because their workers can find better pay elsewhere. While perks sound fun, nothing talks more than money. 

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4. Expansion stage

Now the wheels are turning. You have the people and systems in place. Your business is stable and you’re confident in its ability to continue to operate profitably. This is when you’re able to really pursue growth and expansion opportunities. This is also called the growth stage. 

Challenges

  1. Staying innovative: It took a lot of work to get to where you are, and it can be tempting to simply sit back and enjoy it. Expansion demands more work, attention, and creativity that you and your team have to be willing to give. 
  2. New launches: As you grow, you’ll launch lots of new products, services, locations, even brands. This can be cumbersome and overwhelming for you and your team. 
  3. Financial management: As businesses grow, their financials become more complicated. This quickly becomes too unwieldy to do yourself. 
  4. Resourcing: People are maturing in their roles and becoming more specialized, and you also need new roles and more people. Not to mention other resources like time, money, and space. 

Strategies for Success

  1. Remember to balance your work life and personal life. If you feel like you’re being pulled too much by the business, look for ways to set up managers and organizational structures to delegate some of your responsibilities. 
  2. Focus on one opportunity before moving on to the next. Though it can be hard to want to do everything at once, start small, perfect it, and then apply those learnings to future launches. You don’t want to take on more work than you can handle. 
  3. Hire finance people and use financial software. Accounting software makes it easier to track your finances, while dedicated accounting and bookkeeping professionals can do the necessary manual work. You can either hire for this role in-house or outsource to a trusted expert.
  4. Figure out what you need and then make a plan to get it. If it’s capital, look for funding options. If it’s people, start a hiring push. 

5. Maturity stage

You might even be one of the 7% of small business owners who’s interested in selling and getting out of the business altogether. 

Challenges

  1. Personal conflict: It can be hard to walk away from a business you built from the ground up. It’s almost an extension of you. So even when it’s time to exit, you might feel compelled not to — sometimes to the detriment of the company.
  2. Complacency: If you’re not looking to exit, but you’re not really looking to innovate, it’s easy to feel too comfortable. Complacency can quickly make your business fall behind, and you might not have a choice in the way you exit. 
  3. Negotiations: When selling your business, negotiations can be tough and uncomfortable. It’s difficult to value your business objectively.
  4. Employee morale: There’s a real trickle down effect — if you’re unmotivated, your employees will likely feel that. This will have repercussions on the company as a whole. 
  5. Cashing out: The logistics of actually valuing, negotiating, and selling your business can be complicated. You’ll need to put together documentation and reports that prove your business’s longevity and profitability, and this can be tedious and time-consuming.

Strategies for Success

  1. Network and talk it out with your peers, mastermind groups, fellow entrepreneurs, family members, friends — get as many opinions as you can. Take them all with a grain of salt and formulate the plan that’s best for you. 
  2. Employ the right leaders to keep propelling the business forward. As a leader yourself, it’s important to know when to step aside and let someone else take the reins. 
  3. Take the emotion out of it. There are tons of resources available online to help you learn how to negotiate more effectively.
  4. Focus on employee engagement. Survey your staff to see what they want and implement programs to address those desires. And remember, money always talks. 
  5. Do your research ahead of time so you’re knowledgeable and prepared. Checklists are always helpful (and will depend on the type and location of the sale), and you’ll also want to avoid these mistakes

What Are the Main Drivers of Small Business Growth?

The following are the main factors for driving business growth: 

  1. People: People include your customers and your employees. Without your team, you wouldn’t have a business. And without customers, you wouldn’t make any money. They’re both primary factors of business growth because employees power the growth machine and customers feed it. 
  2. Technology: Technology enables business growth through many ways, including automation, scalability, accuracy, forecasting, and more. Technology continues to advance and propel business growth across all industries. 
  3. Operations: Operations refers to the processes and systems you have in place that run in the background to make your business functional. Without operations, you wouldn’t be able to provide products or services to your customers.
  4. Finance: The more capital you have, the more you can reinvest into the business for future growth. 
  5. Risk: Risk tolerance is very personal so varies from business to business. More risk has the potential for greater rewards, but the flip side of that means more risk could lead to greater losses as well. 

Moving Forward in Your Business

Business growth involves five key stages: idea development, startup, growth and establishment, expansion, and maturity. While the challenges and opportunities change along the way, none of the phases are without. Consider how you leverage people, technology, operations, finance, and risk when coming up with your business growth plan.

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