How to Face the Challenges in the Five Stages of Small Business Growth

A successful business person is often headstrong, brave and diligent. Conversely in business, however, we must also recognize that no one has all the answers and learning from others’ experiences is vital to our own development.

The Harvard Business Review published a report outlining the 5 stages of small business growth. In the report, Churchill and Lewis claim that understanding the current progression of a business facilitates logical and effective strategizing. Although it’s now over 30 years old, this definitive article is often referenced today as a useful framework for defining and managing Small Medium Enterprise (SME) growth. Every business is unique and will therefore face different challenges; however there are many typical stages which largely relate to the vast majority of SME’s. The comprehension of this structure can prove to be beneficial to business owners, allowing them to calculate both risk and sensible investment.

1) Existence

The vast majority of the work for a start-up is carried out by its owner, although there may be one or two employees on a small staff helping out. It is imperative at this stage to gain and maintain a customer base, as many companies fail before they even have a tangible revenue stream. It is likely that there will be some start-up capital in place, but this can quickly run out. Many businesses also invest in the foundations of a long term strategy, before they have taken their first steps, which can be ultimately fatal. For example, I have seen a few small freight/shipping start-ups who invest in IT systems, resources and staff before they even have a client base to justify their outlay.

2) Survival

The primary motivation at this stage is simple; survival at any cost. Survival equates to growth. The realization of the product or service, as originally intended, is vital at this stage. In order to grow, rather than merely sustain, the company must develop a service which differentiates itself from its competitors.

3) Success

Once your brand experiences some success, risk and ambition will play a much more prominent role in the decision making process of what to do next. The company is now established, so there is the possibility of continued operation with only little investment. However, this can result in a loss of growth which will lead to profits plateauing. Many businesses remain at this stage, as there will be a sufficient revenue stream to operate comfortably. Although this may not satisfy the ambitions of the owner, who has two options at this stage: to separate themselves from the business to pursue other opportunities, or take advantage of the company’s recent success to keep driving in more growth. A detailed strategic plan of action, along with the implementation of effective systems, can largely define a businesses’ development. Reviewing the logistical operation of your business, departmental efficiency and IT systems is key.

4) Take-off

Rapid growth is key to this stage, but it’s a difficult thing to achieve while considering long-term sustainability. Growth will require cash, which entails either an outside investor or carefully calculated debt. Risk is now on a larger scale since the company has proved to be successful. If the company has gone public and sought outside investment, then this might result in a relinquishment of control in certain areas. The owner must have competent and motivated managers in place, as the company will have far outgrown the ability to be run by a single person alone. However, this in turn means that the owner’s delegation skills now take on an even greater significance to ensure that all divisions of the company are performing well and are being led by strong leaders.

5) Resource Maturity

Spiralling growth can result in spiralling profits; but it can result in new problems arising. The company will now have a certain amount of power within the market sector, which may be in the form of buying power or resources that can really drive profits. Many companies also stagnate at this level. Their size can lead to a negation of innovative thinking, which is perhaps what previously helped fuel their growth. To counter this, the company may need to look for new revenue streams which can easily happen when they diversify their services. Ensuring that the company, as opposed to competitors, take advantage of market changes is vital. A continuation of growth enables long-term establishment within the market.

Compiling a general framework for small business growth might seem like an ineffective task, particularly given the unique nature of each individual business. However, I feel that elements of this structure can be applied to the majority of small businesses. Determining the stage of your business, planning development, and asking others that have had similar experiences can be hugely beneficial to SMEs.

Matt Everard is the Managing Director of Barrington Freight, a team of freight professionals with decades of experience in the shipping industry. Overseeing the business, he is particularly active within the marketing and business development sectors of his company. He has grown the business into an established force within the shipping industry, with high profile clients across the globe.