Understanding the Different Stages of Small Business Growth
The trends, insights, and solutions you need to grow your business.
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Small businesses in the U.S. are growing. And as these businesses expand, they do so through varying stages of growth. Do you know which phase your business is currently undergoing?
Small business owners told a Kabbage survey that their businesses were growing, reporting that average monthly revenues increased 77% in the past six months, from $47,900 in July 2021 to $84,935.
The Small Business Recovery Report issued by Kabbage, an American Express data and technology company that provides small businesses with access to cash flow solutions, reported that businesses with fewer than 20 employees, or the smallest small businesses, saw a 13% rise in average monthly revenues.
Further, small business leaders reported a 12% increase in average monthly profits from July 2021 to February 2022, while large businesses reported 145% and 29%, respectively.
Understanding Growth Stages
The number of stages and terminology used to describe business growth cycles may differ depending on the model you follow. However, generally, business growth occurs in either four or five stages.
Knowing where your business is and where you're going is essential to planning effectively for your small business.
No matter at which stage a business is in the life cycle, each phase possesed its own unique set of challenges that needed to be creatively overcomed, of the business life cycle, says a post by The Hartford's Business Owner's Playbook.
In one model, the four stages of growth are startup, growth, maturity, and renewal/decline. Another version is a cycle with five stages: existence, survival, success, take-off, and resource maturity.
Starting out. From the initial level, new businesses look at how to plan growth and get to the next level, whether that second stage is called growth or survival.
If you're a startup, particularly as a solopreneur, you may be used to wearing different hats and therefore focused on getting your business up and running.
"At some point, every small business owner comes to a crossroads," says a post by Act! "Are we going to stay small, or will we strive to grow?"
If you reach the survival phase, you've demonstrated that you have a workable business entity.
A business in this stage has enough customers and satisfies them sufficiently with its products or services to keep them, explains an article in the Harvard Business Review (HBR) magazine.
Preparing for growth. To move from startup or survival to the next level, ensure your company has a system that allows growth to happen.
"This means hiring employees, knowing how to delegate tasks, establishing a creative culture," the Business Owner's Playbook says.
Also, continue to innovate, or you'll risk falling behind.
"Cultivate a creative organization that is encouraged – and possibly incentivized – to look for new opportunities, find ways to become more efficient, and find new ways to promote your products and services," says The Hartford post.
Growth/Success. Growth or success is when your revenue increases and your customer base grows.
It's also a time when managing growth becomes imperative to avoid the pitfall of "growing too fast," an oft-mentioned misstep in entrepreneurial circles.
It helps to follow goals that let you grow with purpose, so you're using resources most effectively, warns The Hartford blog.
When you're in success, the business grows to a level that can support itself indefinitely, says Jennifer Nelson in Startup Nation post about the five stages.
She writes that you can then choose whether to scale the business for more significant growth and success or step back to reclaim time and allow the company to function independently.
If you go for expanded growth, you're moving to stage 4, take-off.
The key issue to figuring out how to fund a potentially rapid growth, says the HBR article.
Maturity. The maturity stage is the third phase or, in the alternative model, the final stage, called resource maturity.
During this phase, you're probably feeling safe and secure, which is vastly different from the emotions in the first two stages in the life cycle, says the Business Owner's Playbook post.
In resource maturity, the HBR article says, "The greatest concerns of a company entering this stage are, first, to consolidate and control the financial gains brought on by rapid growth and, second, to retain the advantages of small size, including flexibility of response and the entrepreneurial spirit."
Business Renewal/Decline. This last stage in the four-level growth model sets up another crossroads.
To avoid the road to decline, pursue opportunities to expand during the maturity stage, and react to technology and industry updates or advances, among other things, to help direct your business toward the path of business renewal.