The Five Most Important Stages of Small-Business Growth

Data from the US Bureau of Labor Statistics reveals that about 20% of new businesses close within their first two years, 45% within their initial five years, and 65% within the initial ten years. 

Why is that? Most startup founders need to understand the phases of a business’s life cycle and how each will affect their company. As a result, they need help anticipating the critical requirements of each stage and making the necessary adjustments and strategic decisions.

Here are the five stages of small business growth and what to remember when moving from one to the next. 

Stage 1: Existence

At this stage, the business structure is simplest. Typically, the small business owner handles all the essential operating activities. There are usually no investors, and the owner alone funds the entire venture.

Key challenges and objectives:

• Developing a viable product or service and delivering customer orders.
• Maintaining financial stability.
• New customer acquisition.

Action items for entrepreneurs:

• Create a solid business plan.
• Conduct market research to understand customer needs.
• Prepare P&L projections.
• Research options for raising money.
• Manage resources wisely.

Stage 2: Survival

The business has demonstrated its viability at this stage. It has found a market for its products or services and acquired a customer base. 

The company now has employees, but the owner still makes significant business decisions. The firm probably lacks established systems for hiring, marketing, and more.

Key challenges and objectives:

• Establishing a customer base.
• Maintaining financial stability.
• Ensuring profitability and growth.

Action items for entrepreneurs:

• Work towards improving the business model. 
• Learn to delegate tasks.
• Build a collaborative cross-functional team.
• Explore ways to improve cash flow.
• Identify opportunities to scale efficiently.

Stage 3: Success

At this stage, the business has a strong industry presence. It enjoys financial health, brand recognition, and significant growth.

Furthermore, the company may now operate independently from the owner. It has more employees, a couple of managers, and skilled leaders responsible for decision-making. Lastly, it should have well-established accounting practices, marketing strategies, and production systems.

Key challenges and objectives:

• Effectively manage the growth of the business.
• Keeping the company stable and profitable.
• Establishing market dominance.
• Focussing on enhancing loyalty.
• Securing funding for expansion.
• Expanding the business’ reach.

Action items for entrepreneurs:

• Identify opportunities to upsell or cross-sell.
• Attract and retain top talent.
• Utilize data-driven insights to make informed decisions.
• Invest in marketing to reach new customer segments.
• Engage in contingency planning.

Stage 4: Take-off

The business at this stage experiences rapid growth, which is due to the firm’s ability to leverage its well-established sales, marketing, and operating strategies and processes. 

To meet the growing demand in this phase, the firm typically requires increased resources across verticals like financing, personnel, and infrastructure.

Key challenges and objectives:

• Managing rapid growth.
• Market penetration and customer acquisition.
• Scaling operations.
• Accessing capital for expansion and infrastructure development.

Action items for entrepreneurs:

• Works towards product expansion.
• Develop expansion plans.
• Strengthen operational efficiency by optimizing processes and tech automation.
• Explore funding options.
• Expand marketing efforts.
• Monitor KPIs and adapt strategies.

Stage 5: Maturity

The aim now is longevity. With a capable team, financial stability, and established systems, it’s all about the owner’s drive and ability to use the resources available to secure the company’s industry position.

Key challenges and objectives:

• Effective financial management.
• Maintaining customer service while scaling.
• Sustaining the competitive edge in the market.
• Identifying new growth opportunities.
• Adapting to market changes.

Action items for entrepreneurs:

• Address system and process inefficiencies.
• Foster continuous innovation.
• Explore strategic diversification.
• Leverage lean marketing.
• Work towards creating personalized customer experiences.
• Invest in exceptional customer service.

The final word

Each stage of small business growth has its own unique set of challenges, objectives, and strategies. Use this guide to recognize the growth stage of your small business. This will help you make informed choices and prime your team for later challenges. 

Want to know more about starting your small business? Since 2006, Escalon has helped thousands of startups get off the ground with our back-office solutions for accounting, bookkeeping, taxes, HR, payroll, insurance, and recruiting — and we can help yours, too. Talk to an expert today. 

This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal or accounting advice in this article. If you would like to engage with Escalon, please contact us here.