Did you know that 20% of businesses fail within just two years of opening their doors? Even more alarming is that, according to research by the Bureau of Labor Statistics, only 25% of businesses are in existence at the 15-year mark.
Businesses can fail for a lot of different reasons, including not having a business plan, having a terrible product, or not having a skilled management team. However, at the heart of many of these problems is not understanding or adapting to the key stages of business growth that every startup will face.
This article provides a framework for understanding the stages of business growth, identifying the common pitfalls you are likely to encounter, and providing actionable advice for overcoming them as you expand.
Importance of understanding growth stages
Even though every business is unique, these five stages of business growth are pretty much universal.
It is crucial that, as an entrepreneur, you are aware of these stages and can recognize the stage you’re currently in. Each stage has its own challenges and strategies that can drive successful planning and decision-making.
We cannot emphasize enough that, as you grow, you need to be able to scale your operations in a way that remains true to your core goals and values. That’s not always easy, and it takes awareness, discipline, and a strong strategic plan.
Impact on business strategy and decision-making
Because each of the business growth phases has a unique set of circumstances and challenges, you should adjust your strategy and decision-making principles based on each phase.
The areas impacted by your current stage of business growth include:
- Strategic planning: Naturally, your overall strategy will evolve during a small business expansion. A startup business might focus on validating an offer, while a more mature business may look for diversification and scaling opportunities.
- Financial planning and resource allocation: All growth stage strategies should prioritize finances and allocate resources to best serve the business. However, these strategies will vary drastically as a business matures.
- Market positioning: Newer businesses may focus on positioning their products for customer acquisition. As a business matures, priorities may shift toward maintaining a customer base.
- Risk management: Newer businesses will inevitably have to take on more risk and face volatility, which might not be an option for businesses in more advanced stages.
- Strategic partnerships: Strategic partnerships can be beneficial at all company development stages. However, their nature will inevitably shift depending on the stage.
- Talent acquisition and development: As you go from working as a solopreneur or in a partnership to building teams, how you acquire talent and the type of talent you need are likely to change.
- Product and branding: As your business expands, the needs of your customers are also likely to change, especially with market trends. A minimally viable product at the startup stage is less likely to be tolerated at the maturity stage, for example.
Seed and startup stage
Also referred to as the “existence” stage by other frameworks, a business in the seed and startup stage typically has an owner (or small group of owners) serving as the main operator and driver behind the business.
Definition and characteristics
The seed and startup stage is defined as the inception of a new business. It is often characterized by developing and testing new ideas, securing funding, and establishing an initial infrastructure.
Key activities and challenges
One of the most common challenges owners of businesses in this stage may face is wearing too many hats. Cash may be in short supply, forcing the owner(s) to do everything from product development to taking out the trash.
At this stage, business owners should be working on the following activities:
- Validating a product and developing go-to-market strategies
- Exploring financing options
- Establishing systems for operations and marketing
- Beginning to hire staff to support growth
- Clarifying product offerings and unique selling propositions (i.e., why your product or service is the best)
Strategies for success
One of the best things you can do for your business at this stage is to have a robust business plan. This plan will serve as the bible to ensure you stay on course as you move on to the next stages of business growth. Further, a business plan is a bare minimum requirement if you decide to seek outside funding, either through a loan or with investors.
With your business plan in place, your focus should be maximizing cash flow velocity. In other words, you should strive to strike a balance between having enough cash on hand to fulfill obligations without letting cash sit idle while it should be growing the business.
And finally, you should always be looking for opportunities to expand. You can do this by
- Getting customer feedback to identify gaps in the market
- Considering offering product or service bundles
- Expanding your niche to include new customer avatars
Growth and expansion stage
Congratulations! You’ve proven that you have a viable product or market, and you’re beginning to see success. You have now entered the growth and expansion stage. Buckle up; it’s going to be a wild ride!
Definition and characteristics
Once you’re generating consistent revenue and a growing customer base, you’ve officially entered the growth and expansion phase. This is the time to make hay while the sun shines and work to secure a stronger position in the marketplace.
This could involve scaling your business, entering new markets, or entering into strategic partnerships as you look for ways to dominate your niche.
Key milestones and challenges
This stage often comes with brand recognition, profitable alliances, and growing your team. Yo
u’re likely achieving new revenue records and a steady stream of new customers.
Despite the increase in cash flow, many businesses struggle in this phase. Because it takes money to make money, an increase in demand for your product could lead to supply chain and financing challenges. Also, as you grow and expand your team, there could be an unintended shift in organizational culture.
The success you’re seeing could also attract new competitors, which could start to stifle your growth and threaten your overall position.
Strategies for scaling and sustainability
At the expansion stage, scaling your business sustainably should be a top priority. While you want to scale your operations, if you do this too quickly or carelessly, it could backfire.
The key here is to focus on scaling what is most important. Instead of introducing a new product for the sake of having something “new,” concentrate on what will serve your business best in the long run.
Examples include:
- Increasing your advertising budget to acquire new customers
- Identify new markets (either geographically or audience-based)
- Investing in technology to increase productivity
- Building strategic partnerships to aid in expansion
- Developing customer loyalty programs to increase average order value and increase referrals
- Incentivizing employees to engage in continuous learning and improvement
- Diversifying revenue streams
Maturity stage
Also defined as the success stage, reaching maturity means you have a thriving business with steady, sustainable profits. Don’t rest on your laurels, though. There could be danger ahead.
Definition and characteristics
Once your business has reached the maturity stage, it has a well-established market presence, consistent and stable revenue, and reasonably well-defined processes.
By this point, the owner may have taken a step back from the company, as a combination of senior management and robust systems allows the organization to operate without a single leader exerting control over every aspect of the business.
Market saturation and competition
A potential downside of this stage is that you’re likely to be faced with increased competition. You’ve made a name for yourself in the marketplace, and competitors want a piece of the pie.
The key here is to avoid becoming complacent. You should look for opportunities to differentiate your product or introduce something new to the market so that you can continue to stand out.
Strategies for diversification and innovation
While you have the cash to spare, use this time to diversify your product and service offerings, experiment with new customer segments, and look for ways to innovate to remain competitive.
Decline stage
What goes up must come down, but a decline can be temporary. Even Apple has faced this stage and managed to come out on top.
Definition and characteristics
This stage is defined by a decrease in revenue, or the sense that every dollar you earn is harder to come by. The competition feels stiff!
Identifying signs of decline
You know you’re in the decline stage when your sales begin to dry up, your customers are walking away, and you notice a distinct decline in market share.
Strategies for turnaround or exit
It’s important here to decide what you want out of the business. You can sell off, or you can decide to turn things around. A merger is one way to do this. Other options include cutting costs, innovating your product line, or restructuring the business.
Factors influencing business growth
No matter what you do internally, external factors can also influence your business’s growth, including:
- Market conditions
- Financial resources
- Leadership and management
- Innovation and adaptability
Common pitfalls to avoid
No matter what industry you’re in, you could be at risk of the following pitfalls:
- Lack of strategic planning: You need a plan to guide your direction and seize the right opportunities
- Poor financial management: It’s important to have ample resources to sustain the business.
- Failure to adapt to market changes: The only constant is change – be aware of it and ready to adapt.
- Overexpansion without proper resources: Rapid expansion is tempting, but business owners need to be disciplined when seizing opportunities.
Being aware of these pitfalls can put you in a better position to anticipate obstacles and overcome them as you move through the five stages of business growth.
Conclusion
And there you have it—a full guide on the stages of business growth and development! By understanding these stages above and each of their characteristics, the best strategies within each stage, and everything else, you will be setting yourself and your business up for future success and/or continued longevity. Thank you very much for reading all the way to the end, and good luck on your business growth journey!
