The 5 Stages Of Small Business Growth

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The 5 Stages Of Small Business Growth
14 Oct 2021
7 min read

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Every small business goes through 5 stages of growth. If you own a small business or looking to open your own business, it’s better to be aware of these 5 stages.#ThinkWithNiche 

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Starting a business is tough. Pandemic or no pandemic; opening a small business and running it, always comes with its own set of challenges. But the pandemic really affected the small business industry as one-third of all small businesses closed down. Many closed down while others incurred huge losses. But that's the risk you take when you decide to become your own boss. Business is all about risk; the size doesn't matter.

But even in the small business industry, every business has its own set of challenges, the path to success, flavour, customer base, etc. Some small businesses never expand outside of a locality while some grow to become huge brands or companies. But all small businesses do follow a certain growth pattern. This pattern was invented by Neil C. Churchill and Virginia L. Lewis in 1983. Their business model for small-scale businesses changed the way people looked at the industry. So if you own a small business or are looking to open your own business, it would do you good to know about the 5 stages of small business.

1. Stage 1- Existence 

In the beginning, every small business is running on a beta mode. This is a phase where small business owners are most concerned about finding customers and making sure they get good products and services. Most owners are just testing the water so as to determine whether their business will become profitable or not. How a small business fare in this stage determines whether it'll be able to move to scale or not. And if they do, they are known as Stage 2 companies.

2. Stage 2 - Survival 

The businesses that move to this stage have proved that they have got their basic business plan right. They have successfully been able to attract just the right amount of customers to stay afloat. Now their true hustle will begin for now they will have to face true operational problems. The major concern at this stage for most small businesses is to maintain a balance between expenditure and revenue. At this stage, owners should be looking at a total of three things -

a) Whether they will be able to generate enough cash to break even and cover their basic costs,

b) Whether they can get their cash-flow to get even,

c) Whether they'll be able to finance their growth in order to earn good profit on their assets and labor.

3. Stage 3 - Success 

This is a positive stage for small businesses. Owners who are able to enter this stage have managed to earn good profit. Their business is doing good and has reached economical health. Now there are two major decisions that any small business owner would have to take from hereon. They are divided into 2 subsets-

a) Success-growth Subset

If the owner decides to gather all the financial resources and risks it all to grow their business, they'll fall into this subset.

b) Success-

Disengagement subset- But if the owner decides that they don't want to expand and risk it all and just stay where they are, they'd be falling into this subset. Here the owner will build a good team and hire a manager to run the existing business successfully while supervising the business.

4. Stage 4 - Take Off 

This stage is for owners who fall under the Success-growth subset. Now that they have taken a decision to expand their business, they will have to take a lot of big decisions. First, they'll have to decide how they want to grow, i.e, horizontally or vertically. After that, they'll have to come up with smart business tactics and strategies to ensure that their business doesn't crumble down. Owners would now also have to hire certain people to help them make important decisions. At this stage, a small business would be emerging as a large business, if the growth part goes right.

5. Stage 5 - Resource Maturity 

This is the final stage where a small business has finally bloomed into a corporation. The owner and the business have separated to a huge extent. Now the company has a management team and a necessary system in place to run a big corporation. From here on the sky is the limit. If the team and the owner play their cards right and make good entrepreneurial decisions, they can become really huge.