The five stages of business growth

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The path that a small business takes to become a large corporation is full of challenges and opportunities. From the acquisition of clients at the beginning of the company to the selection of managers in the growth phase and the definition of the strategy, everything has a moment and a reason for being. However, it is the entrepreneur’s ability to adapt to the requirements at each stage of growth that ultimately allows the company to evolve.

Depending on the level of complexity of the firm, it will be located in one of the five stages of business development: existence, survival, success, take-off, or maturity.

In each of them, the role of entrepreneurs has a different connotation, and, as the stages progress, the organizational structure and strategies become more sophisticated, since a neighborhood store is not the same as a supermarket.

First stage: existencestages of business growth

This is the starting point for most companies. Here, all efforts are aimed at obtaining clients and delivering the product and/or service offered. In general, the organization is quite simple and the owner is the one who carries practically all the activities of the company on his shoulders.

The opportunities at this stage are, precisely, in the relative ease to explore different alternatives that allow to fulfill the promise of value of the company and adjust quickly to what customers demand.

Since the goal is to build a customer base, you may have to give away product samples or offer free trials of services. With this, the chances of becoming visible, obtaining more clients, and creating solid bases to advance to the next stage will be increased.

Unfortunately, many companies fail to obtain sufficient acceptance of their product or fail to be viable, consume all their capital, and go out of business in a very short time. Proof of this is that, according to OECD statistics, in some countries, the mortality rate of companies in the first year can reach 31%, and, in the case of sole proprietorships, this figure exceeds 40%.

In the Colombian case, these statistics are not encouraging. According to Confecámaras, about half of the new companies cease to exist in the first five years. In this period, the inability to obtain and diversify clients, as well as to position their product in the market, erodes the company’s finances and forces its closure. The consolation is that the remaining 50% continue in the race towards the following stages.

Second stage: survivalstages of business growth

In this phase, the business has proven to be viable, has enough customers, and the product offering is capable of maintaining the consumer base. The main strategy is to balance income with expenses and form strategic alliances with other companies in the sector.

For this, progress must be made in the planning and projection of cash flows. Thus, not only is their clarity about the prospects of the company. But it also mitigates the perception of risk that the firm may have. It is important to access credits that allow the company to continue with its development. It should not be forgotten that, according to ECLAC, 26% of SMEs around the world have limitations to access financing – in Latin America, it exceeds 30% – a fact that hinders their growth.

In addition, some firms stagnate in this survival phase, establish themselves in a comfort zone around the marginal returns of capital and time invested, and do not advance. In this case, the company generally stays afloat while the owner is still present. But once the owner leaves, the company either ceases to exist or is sold at a loss.

Third stage: successstages of business growth

After completing the first two stages, the company is already recognized in the market, it is profitable and self-sustainable. Its organizational structure is more complex and it has heads responsible for different tasks and indirect supervision by the owner since now its functions should be more focused on strategic planning and not on micro-management.

In this scenario, business development experts affirm that the entrepreneur faces a dichotomy: he can leverage the growth of his company by taking advantage of the achievements made, or he can maintain it as a source of income while pursuing other activities – political aspirations, hobbies, found other companies, etc. -.

Both possibilities have their pros and cons without one being better than the other.

It must be said, in defense of some owners who choose the alternative of not growing. In some cases, that is the smartest alternative.

For example, in markets that are already saturated, as may be the case for some franchises in places where geographic expansion is no longer possible, the best decision is to maintain the company’s strength without embarking on the risks of expansion. This is why, in the success stage, it is extremely important that the owner’s decisions are aligned with the possibilities offered by the market.

So, if the owner’s decision is to keep the company only as a source of income. It enters the decoupled success substep in which the company can remain, indefinitely, with the proper management. The term decoupled refers to the distance that the owner takes as the company matures. Because, in this scenario, the owner’s priority is not the company but other activities.

This distancing implies that the management of the company falls increasingly on the executives and managers.

Stage Four: Takeoff

If the company’s practices in the success-growth sub-stage were adequate, the firm enters the take-off phase. In which the company has the opportunity to head towards the big leagues in the business sector. To achieve this, some of the characteristics that allowed. You to advance in the previous three stages must be left behind.

Thus, the main change has to do with the owner’s tasks. Until now, he has been involved in all areas and decisions of the company. However, in the take-off stage, with a company growing rapidly and becoming larger and more complex. It is vital that the owner delegates part of his activities and entrust decisions to his team of managers.

This element is so important that, according to studies by the London Business School, at this stage of take-off. A company whose owner knows how to delegate effectively can increase its sales by between 5% and 20%. In addition, the level of satisfaction of managers increases by more than 32%. This allows retaining that talent, increasing productivity, and reducing hiring and training costs.

It is worth clarifying that this empowerment implies that performance indicators must be created and controlled for the management team – sales levels, times, profitability, productivity, etc. – in order to correct errors and increase the probability of continuing to the next stage.

The aforementioned also invites to deepen the decentralization of the organizational structure and that the company is increasingly systematized. This applies both for product manufacturing processes or for the provision of services offered by the company. As well as for the internal control of the company. Like human resource management systems, quality standards supervision, inventory management, among others -.

In this sense, both operational and strategic planning plays a fundamental role in the future of the company. Since finishing where you want to go is as important as defining how to do it. However, it must be recognized that it is not always possible to advance to the next phase. Some researchers from Harvard University maintain that there are not a few cases of owners who have managed to take their companies from the first to the fourth stage but fail in the latter due to the inability to make the necessary changes to continue their development.

Fifth stage: maturity

The rapid growth phase cannot be sustained indefinitely; Sooner or later the expansion rate will moderate and the company will enter a stage of maturity in which stability is one of the most outstanding points of the company.

In this stage, the changes in the organizational structure and the development of the strategy proposed in the take-off stage must be studied in depth (otherwise it will backtrack).

At the same time, although the company has now reached the top of the business world. If it wants to maintain that status, it must innovate and diversify its products and services. This includes the purchase of less developed companies –in the second or third stage– and that have these innovations.

For its part, the risk at this stage is precisely overconfidence when assuming that size is equivalent to shielding against new competitors, products, and technologies.

This is why, at this stage, strategic planning is the most important element for the company. Its proper development and application are what allows us to identify. And prepare for changes in market trends, which will increase the probability of staying on top of the business world.

At this point, it is clear that each of the stages of company growth requires a common element: adaptation. This is the feature that enables a company to make the necessary changes. And focus on the elements necessary to move from one stage to the next, reducing the chances of failure.

Ronney

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