How I Got to This and Why You Should, Too
When I decided to go into business with my partner, I had a lot of questions and a lot to learn. I launched headfirst into networking events big and small and got myself in front of a lot of different types of people in follow-up conversations. I also reached out to any contacts I had that I thought might have advice or connections for me and asked if they would be so generous as to share 30 or 45 minutes with me.
This, of course, led to flywheel networking: you know, “You should meet so-and-so,” then so-and-so suggests you meet someone else and pretty soon you are in the position to ask a lot of questions to a lot of people and learn fast.
It turns out that most often if you want to know something about somebody or how they do what they do, all you have to do is ask. In these numerous conversations, I learned how people run their businesses and what they have learned from it–as well as what kinds of questions I needed to have answers to.
One of the first answers I realized I needed was: who do you serve? Who is your ideal client, your target market? Talking this over with my partner and considering our services and interests, we came up with the vague description of “growing small businesses,” not necessarily those that are just starting.
Having a limited business background myself, I needed a crash course. What defines a growing business? What does that process look like for a small business? What are they going through, what is life like for them, and what matters most to them?
And if you are a small business owner trying to grow, it might help you to understand those inquiries in more certain terms, too. After all, what is most difficult about new things is often that you don’t know what is going to be hard about it and then feel unprepared when it finally arrives.
Naturally, I took to Google and searched “small business growth,” which led me to this very well-researched and prepared article from the Harvard Business Review, The Five Stages of Small Business Growth.
Summarizing Harvard Business Review’s Article
Written through experience, empirical evidence, and literature review, it examines the earliest stages of small business in detail, defining each stage in different terms and metrics. Essentially, small business is looked at as a species–although there are a lot of differences within a species, there is a typical lifecycle and similar challenges and characteristics that define its ability to survive and thrive.
Having a general roadmap for that lifecycle serves as a point of understanding and can help you anticipate and navigate the requirements and challenges that may arise, as well as diagnose and troubleshoot when they do. By now, we’ve all heard the stats on how many small businesses close in their first 1, 5, and 10 years: over 20% fold in year one and over 60% fold by year 10, according to the US Bureau of Labor.
The article, which I highly recommend reading, breaks down small business growth from inception to reaching a midsize/large business with five stages: Existence, Survival, Success (-disengage or -growth), Take-off, and finally, Resource Maturity. \
A couple of notes: first, not all businesses desire or are suited to have a larger business model. While these are the 5 stages of successful business growth, the path is not always linear, with different gradients of success, setbacks, and failure along the way.
Next, at the success stage, a business owner faces a crossroads and has to choose what to do with the success. The owner may either choose to maintain the success and disengage from the business (the Success-disengage path), essentially stopping the lifecycle there, or the business owner can decide to try to make it big with continued growth (the Success-growth path).
Each stage is defined and named by the main strategy for the business in that stage. The strategy in the Existence stage, for example, is to prove you can exist as a viable business by getting products or services to customers. Succeeding that, the business is now in a Survival strategy, not only surviving in the here and now but ensuring you can continue to stay alive. More on this below.
As a business passes through each stage, its relationship with demands changes, as does its relationship with what resources, skills, and functions are necessary. Metrics–like its size, complexity, managerial strategy, extent of formal systems, organization, and relationship to the owner also change depending on the strategy stage it is in.
The information given in the article characterizes successful small business growth and what stifles it, outlining the changes in those relationships that lead to both good and bad results. In this way, it offers excellent guidelines for growth; understanding what influences these relationships helps inform the decisions a business needs to make to succeed.
The Roadmap Adaptation: A Guide to Growth
With the idea of guidelines in mind, I have adapted the article to lay out a simplified road map for successful small business growth that walks through each stage, breaking it down into simple terms: what defines it, the main areas of focus, and the big questions the business needs to answer within that stage, possible outcomes from that stage, and what factors tend to lead to the varying degrees of success, setback, and failure. The highest success is generally moving on to the next stage of growth.
Stage 1: Existence
In the Existence stage, the business is just starting and is determining if it can actually be viable and exist. Therefore, the main area of focus is on staying alive by getting products and services to paying customers. Usually, the business and the owner are one in the same and much of the success here relies on the dedication, abilities, and interest of the owner.
The big questions that the business needs to ask itself to succeed at this stage are on the owner’s ability to fulfill the initial money and energy investment as well as starting to consider the reality of building, scaling, and growing. Failure to move on to stage two could look like selling, usually at a loss, or folding and possibly going bankrupt.
Success is ultimately defined by the ability of the owner to meet the initial demands and the business to get enough customers. It is important to put in the effort and keep the focus on what matters, avoiding spending on things that don’t.
When Sara Blakely started Spanx, she made herself a t-shirt with iron-on letters that said “Spanx” and wore it everywhere– literally, she wore it almost every day for seven years– as a way to build her brand and market for very little money, keeping the focus on building up her customer base.
Stage 2: Survival
Once the business moves on to the Survival stage, it is looking at its ability not only to stay alive but to keep surviving over time. This means it is starting to organize and expand with a focus on examining the relationship between revenue and expenses. I should be asking the big question of whether it can survive the short and long term by making enough money to break even and beyond.
From here the business has two paths toward a gradient of Success: moving on to stage three, Success, or staying here and continuing to just barely make it. This may function as a way to sustain a person or family, similar to a salary, but usually, the business closes down once the owners are done with it. Think about your local mom-and-pop shops. The other alternatives are selling, again usually at a loss at this point, or folding and possibly going bankrupt.
The path to Success is defined primarily by a focus on ensuring economic success and cash forecasting and letting go of personal goals. Failure generally comes from not building a good enough customer base and bringing in revenue, or unforeseen challenges.
Stage 3: Success
Reaching initial Success is a point of inflection for the business, with the need to decide on what to do with that success: maintain it here or continue for bigger growth? The business needs to focus on answering big questions to make that decision.
The owner needs to decide if they have the energy and time to invest in growth, or if they have a desire to pursue other things, like family matters, political office, a different role, or a new company. They also need to consider if they can delegate effectively, as this is crucial to more growth.
Stage 3.1: Success-disengagement
When deciding to embrace Success and Disengage, the main strategy is to maintain and separate, with both parts being important. To maintain, the business needs to be properly set up to ensure economic success, with enough market penetration, economic health, and the right systems, people, and strategies in place. It also needs to be able to adapt to maintain itself within a changing environment.
The business owner not being able to properly disengage often leads to the inability of the business to maintain its success. If the owner opts for this path to pursue something else in life but also tries to keep their hand in the business, essentially trying to do two things at once, the business will likely suffer. Another factor that leads to setbacks is the inability to adapt to the changing environment. A business in these situations may drop back down to survival mode or completely fold.
Success in maintaining Success lies in having the right systems and people in place that serve the goal at hand. This may look like carrying on with the same level of success, growing at some point, or selling at a profit.
A perfect example of this stage in action is a contact of mine who grew her small marketing business to a good size of employees and revenue and sold it at a large profit to a larger agency to give her the chance to consider a new role in life.
I noticed she had a number of clear systems and processes in place both to organize client relations and for internal communications and operations, such as a business vision and plan, goal-oriented check-ins, and more. She was also smart about moving people into roles that suited their strengths and creating an environment where people wanted to work, leading to engaged employees that really helped grow the business.
Stage 3.2: Success-growth
When taking the path to use Success toward even further Growth, the business now has to have a laser focus on that growth through consolidation and investment. It needs to be able to keep the basic business profitable but be willing to risk it all to finance growth.
A great Aunt and Uncle of mine ran a printing business for a long time, and once they hit success, their growth required big expenses like more space and machinery, so they took out a second mortgage on their house and didn’t take out health insurance on their children for a while.
For the Growth path to work, the big questions to be answered revolve around the ability to take risks, invest hard, and delegate well all while still maintaining basic profits. The business needs to begin developing managers that align with the goals for growth. If successful with this, the business can reach the Take-off stage and reach for rapid growth. This stage is usually a trial to determine the Growth strategy for Take-off.
If the business wasn’t prepared with the right systems and people or the owner doesn’t effectively delegate, and the company can’t continue the growth, it is likely to lead to other outcomes like selling, usually at a profit; retrenching and trying again; dropping back to a previous stage; or folding and possibly going bankrupt.
Stage 4: Take-off
In the Take-off stage, the business is on the path to “making it big” and is focusing on rapid growth through cash and delegation. The business must have an adequate budget with investment for growth and be able to answer questions about its ability to fund growth, handle a high debt-equity ratio, and avoid unnecessary spending.
It also needs to begin leaning on managers to make more decisions, delegate effectively within the complexity of growth, and have decentralized systems in place to support a larger business infrastructure. Through preparation, taking risks, having the right people in place, and investing enough in growth, the business is on the path to making it big! Other positive outcomes may include selling for a profit or retrenching and maintaining a lower level of success.
What most often leads to challenges in this stage is a sort of God-complex: omnipotence and omniscience syndrome. In omnipotence syndrome, the business owner thinks they have all power and control, and can do things however they want, trying to grow too fast or making poor decisions and ultimately running out of cash.
In omniscience syndrome, the business owner thinks they know everything about the company and what is best for it and cannot let go and effectively delegate. These can lead to negative outcomes like dropping back to much earlier stages or folding and bankruptcy.
Stage 5: Resource Maturity
Now that the business has “made it,” it has to figure out how to keep it, which mainly consists of getting ahold of its finances after the rapid growth and maintaining that small-business edge. The big questions it needs to ask involve taking a step back and a fresh look at all of its aspects: finance consolidation and control, expanding the workforce and eliminating inefficiencies, professionalizing with better tools and systems, and doing this while maintaining the entrepreneurial spirit.
If the business can decentralize management and stay fresh in a changing environment, it stands the chance to become a formidable force in the market! Otherwise, it faces ossification. If it doesn’t stay on its toes, keep its small-business edge, and adapt to changes in the world it serves, it risks becoming stagnant and declining.
Applications and Conclusions
Before concluding this article, take a moment to put it into practical terms: think about your business or businesses you know and try to see what phase they might be in. This is especially helpful as you grow your business–if you can identify the stage you are in and recognize the challenges at hand, you can make better decisions on where to effectively invest your time, energy, and money.
For example, if you are in the Existence or Survival stage, you may not need to invest as much into your website, but more on other means of marketing and sales. Then, as you move from Survival toward Success, it may behoove you to consider an effective website that is connected to your digital systems, brings you to a higher level of professionalism, and functions as a sales tool.
If you recognize that you are in the Survival stage (like so many small businesses get stuck in), you now know that your main focus and drive is growth through sales and exposure. You need to focus on penetrating the market and building your revenue as a fuel to your growth. Systems like a CRM, automation, or organized SOPs can be helpful and will become more necessary as you grow, but if you are focusing your energy on that and not building your customer base, you may be limiting your growth!
Take the time to recognize where you are and where you want to be, then take the steps to get there, checking in with yourself along the way. Use this roadmap to help you as you check in with yourself. Cheers to your growth!
