Small businesses are like snowflakes: each one is unique in how it runs and serves its audience. But despite their differences, most small businesses tend to experience similar stages of growth along the way.
So, what are the five major stages of small business growth? According to the Harvard Business Review, they are:
Let’s break these down and find out where your small business lies today.
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1. The existence stage: Generating customers and fulfilling their orders
If you’ve just launched your small business, then first of all—bravo! We admire your courageous and entrepreneurial spirit, and we wish you the best of luck.
Unfortunately, luck won’t help you conquer the two most challenging aspects of starting a new business: attract new customers and fulfill their orders.
It doesn’t matter if you’ve just opened up a new gym or a new ice cream parlor, if you’re operating under a subscription or non-subscription plan, or if you’re providing a service or product—finding that first customer and successfully giving them what they paid you for is always the hardest part of the existence stage in business.
But why? How can that be so difficult?
Well, if you’ve never experienced the existence stage before—which is when you’re just beginning to service customers and receive money for it—it’s hard to imagine the difficulty of winning your first paying customers and successfully fulfilling their orders or contracts.
The truth is, it’s incredibly hard to do.
Part of that has to do with the fact that, at the outset of most small businesses’ life cycles, there’s only one or two people running the whole show. Most of the time—at least in true small businesses—it’s a founder or two co-founders doing everything in the existence stage. This puts an incredible amount of pressure on them because they’re not only in charge of marketing and selling the business offering, but they’re also in charge of handling the logistics of the product/service delivery, as well as any customer service needs (should they arise).
Not to mention, most people don’t have a huge runway of capital to fund their new small businesses, so the longer it takes to acquire those first paying customers, the more money a business loses early on in its life. In these cases, small businesses can either take on debt, raise money in exchange for stake in the company, or accept failure without ever reaching the next stage of growth: survival.
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2. The survival stage: Breaking even and generating cash flow
You’ll know you’ve moved beyond the existence stage when you have a consistent flow of customers and are successfully delivering your agreed-upon products or services without any problems. Soon after, you’ll begin looking at sales versus expenses a bit more carefully and start considering how to maximize the profitability of your company. After all, that’s the only way to grow your company in a healthy way.
This is also the stage when effective communication becomes critical. You have to be able to communicate with not only your own team (typically your staff, contractors, or freelancers) but also your clients or customers, and prospects.
You’ll need a business phone, sure, but that’s the bare minimum. Will you need to be able to make video calls with a contractor or clients who are located in another country? Would you prefer texting with clients instead? What about instant messaging? Depending on your industry and how your customers like to operate, you might need other communication channels beyond the phone.
If you’re in this situation, our advice would be to look for a solution that gives you all those different channels in one app or software. This not only streamlines the number of tools you’re using (and paying for), it also makes life easier for you overall because you won’t have to manage a bunch of disparate tools. For instance, RingCentral’s desktop and mobile app gives you messaging, video conferencing, and a phone service, all in the same app:
Remember, starting in this stage and going forward as you get into the success and take-off stages, this will become more and more important because, well, you’ll be communicating with drastically more people. A lack of communication is one of those “silent killers” that can really hurt a business—you won’t notice it being a problem until it’s too late.
By the time a client leaves because you’re not responsive enough, or your teammate gets frustrated because they can’t do their work, the damage will have been done.
However, one thing’s for sure: if you know how to grow your business during the survival stage, you’ll be introduced to a stage within the business life cycle that many owners never quite reach, and one that can be significantly more comfortable and lucrative for you.
Yup… what we’re talking about is the success stage.
3. The success stage: Continue growing or enjoy stable profitability? The choice is yours
At this point in your company’s life cycle, you’ve established operating procedures and customer retention strategies that have your margins in a consistently healthy place.
In other words, your small business is on cruise control.
What do you do from here?
Well, that all depends on what you want your business to be.
At the success stage, you can decide to push for further growth (a high-risk, high-reward option), or you can let your business enjoy stable profitability (a low-risk, lower-reward option). Further growth requires you to invest everything you have back into the company—a move that could catapult your small business into the stratosphere… or bankrupt it.
On the other hand, enjoying stable profitability allows you to step away from some of your founder duties to engage in other ventures, but your absence could jeopardize your company’s success. That being said, there’s always the option for you to enjoy stable profitability while remaining heavily involved in the day-to-day operations of your business.
Like we said before, it all comes down to your preferences and what you want your business to be.
4. The take-off stage: Growing fast and how to finance it
Let’s pretend for a moment that at the success stage, you decided to go for it.
You took all of your profits and additional company resources and invested them back into the company to take a shot at extreme growth.
And it worked!
Your small business is now in the take-off stage, which occurs when you experience rapid growth in a short period of time. This stage is equal parts fun and frightening, as massive growth requires massive amounts of cash to continue paying overhead (e.g., employees, rent, vendors, etc).
At this stage, it becomes vitally important for you to begin developing a pitch deck and connecting with investors—because if you don’t start raising money fast, you’re on the accelerated path—to bankruptcy.
Last but not least, to round out our stages of business growth, we have something called “resource maturity.”
5. The resource maturity stage: Taking control and remaining entrepreneurial
This stage’s name, like the rest of the stages’ names, is fairly self-explanatory.
When you reach the resource maturity stage, your business will have immense financial freedom and market control. You’ll have predictable plans and practices with predictable outcomes and results. It’s now up to you and your teams to harness your cash flow and refine your strategic plans, business models, and growth initiatives to maintain the business success you’ve had leading up to this stage.
But it’s also imperative you don’t lose sight of the gritty, entrepreneurial soil you’ve grown from. Because here, during the resource maturity stage, it becomes easy for small business founders to implement business practices and company policies that hinder innovation, limit collaboration, and deteriorate culture. For whatever reason, as small businesses become medium- and large-sized companies, many founders lose sight of what got them there in the first place, and they turn their beloved businesses into regressive companies doomed for failure.
So, as you may have guessed, finding the balance between buttoned-up process and entrepreneurial chaos is integral to staying successful during this final stage of the small business lifecycle.
Small business growth: Don’t sleep on scalable tools
We hope this list has shed new light on your own business: where it’s been, where it is now, and where it can go with the right support. Let us leave you with one takeaway we’ve learned from our time helping small businesses move through these stages:
As you prepare to move into future phases of growth, be sure you’re equipped with tools that will help you today and tomorrow. Consider scalability as you shop for new tech, and you might save yourself a lot of growing pains in the future. Check out the range of features included at each price range in detail, so you know what capabilities you’ll have at your fingertips when the time is right to upgrade. Happy growing!
Originally published Nov 04, 2021