5 Stages of Small Business GrowthDECEMBER 2016
Contents
1. What it is
2. Stages overview
3. Takeaways
What it is
There are common problems for small businesses o Harvard Business Reviewo Neil C. Churchill & Virginia L.
Lewis
Arise at similar development stages
Similarities organized into framework
Builds understanding of nature, characteristics & problems
Range -- corner dry cleaner to $20M software (40% growth rate)
Framework helps assess challenges o New computer systems
upgrades, train managers
Business Stages
1. Existence
2. Survival
3. Success
4. Take-Off
5. Resource Maturity
What It Is
Anticipate key requirements at various points o Require time commitment for startup
ownerso Need for delegation & changing
manager roles o Companies’ becoming larger & more
complex
Evaluate impact of government regs & policies
Aid accountants & consultantso Diagnose & matching solutions to
smaller, relevant enterpriseso Strategic planning for 30-year-
old,100-person manufacturing coo Budgeting = coordination & operating control
o Cash flow planning for six-month-old and 20-person business
Researchers identified 5 stages
What it is
Existence
Main problems◦ Customer acquisition
◦ Product delivery
Key challenges◦ Attract enough customers
◦ Delivery products
◦ Provide good service
◦ Expand > one key customer
◦ Cover cash demands
Survival
Workable business entity◦ Enough customers
◦ Sufficient customer satisfaction
Shift from existence ◦ Revenue & expense relationship
Key challenges◦ Generate enough break even cash
◦ Cover expense repairs/replace capital assets
◦ Minimal cash flow to survive
◦ Finance growth to sufficient size & earn ROI
Survival
Simple organization
Limited employees managed◦ Sales director◦ Foreman
Managers◦ No independent decisions◦ Carry out defined orders
Systems◦ Minimal◦ Formal plan = cash forecasting
About survival
Business = owner
Survival
Might grow next phase
Or remain at survival stage◦ Marginal ROI
End when owner◦ Surrenders
◦ Retires
Such businesses◦ “Mom and pops”
◦ Manufacturing with limited sales
◦ May be sold or fail
Success
Challenges◦ Exploit accomplishments &
expand◦ Keep stable & profitable ◦ Base for owner’s other
activities
Questions◦ Use company as growth
platform◦ Support means for owners
◦ Disengage partially or completely
◦ Start new enterprises◦ Pursue politics or hobbies◦ Business status quo
Success Substage III-DSuccess-Disengagement Substage
◦ True economic health
◦ Sufficient size & product penetration = success
◦ Average or above average profits
◦ Stay at substage
◦ Environmental change doesn’t ruin niche?
◦ Ineffective management reduce competitiveness?
◦ Functional managers assume duties
◦ Competent, acceptable quality, upward potential v. goals
Plentiful cash & avoiding drain & protect rainy day
Success Substage III-DProfessional managers on board
◦ Controller & production manager
Basic financial, marketing & production systems
Operational planning & support functional delegation
Owner/functional managers monitor strategy
◦ Maintain status quo
Business & owner start to separate◦ His other actions supplant◦ Other managers’ presence &
roles
Success Substage III-D
Many companies stay here forever
◦ Niche no support growth especially
◦ Professional services businesses
◦ Small & medium sized in slow growth communities
Choice route
◦ Adaptable to environmental changes
◦ No adapt = end/marginally surviving
◦ Continue, sell or merged at profit
◦ Growth stimulus
Success Substage III-D
Many companies stay here forever
◦ Niche no support growth especially◦ Professional services businesses
◦ Small & medium sized in slow growth communities
Choice route
◦ Adaptable to environmental changes◦ No adapt = end/marginally surviving
◦ Continue, sell or merged at profit
◦ Growth stimulus
Substage III-G•Profitability pace with cash demands
•Develop managers to meet business needs
•Hire managers with future perspective
•Critical install systems for coming needs
•Operational planning• Form of budget• Extensive strategy planning & owner
invested
•Ownership• Deeply involved in strategy • More active in all company affairs v.
disengagement
Take-Off
Key problem◦ Grow rapidly◦ Finance growth
Challenges◦ Delegation◦ Cash
Delegation◦ Responsibly◦ Improve managerial
effectiveness◦ True delegation & performance
controls◦ Willingness to make mistakes◦ Delegation v. abdication
Take-Off
Cash
Enough vs. growth demands◦ Tolerate high debt-equity ratio
◦ Cash flow not eroded
◦ Bad expense controls
◦ Ill-advised investments from impatience
Take-Off
Decentralized organization
Divisionalized sales/production
Key managers = very competent
◦ Handle growing & complex environment
Systems, growth strained, become
◦ More refined & extensive
Operational & strategic planning
◦ Involves specific managers
Take-OffOwner & business separate reasonably
Dominated by owner’s presence & stock control
Pivotal point◦ Owner rises financially & operationally
◦ Becomes big business◦ Sold profitably, if owner recognizes limits soon
Growth achievement◦ Original management replaced on own/or not◦ Voluntarily or involuntarily
Retrenching◦ Continue as successful earlier stage company◦ Fall to Survival/possibly fail
MaturityGreat concerns
◦ Consolidate & control financial gains v. rapid growth
◦ Retain small size advantages◦ Response flexibility◦ Entrepreneurial spirit
Expand management force = eliminate growth ineffectiveness
Professionalize tools = budgets, strategic planning, MBO, cost systems
◦ Retain entrepreneurial qualities◦ Decentralized management, full
staffed & experienced
Systems extensive & well developed
Owner & business separate, financially & operationally
What It Is
Anticipate key requirements at various points o Require time commitment for startup
ownerso Need for delegation & changing
manager roles o Companies’ becoming larger & more
complex
Evaluate impact of government regs & policies
Aid accountants & consultantso Diagnose & matching solutions to
smaller, relevant enterpriseso Strategic planning for 30-year-
old,100-person manufacturing coo Budgeting = coordination &
operating controlo Cash flow planning for six-month-old
and 20-person business
5 Stages of Small Business GrowthDECEMBER 2016