5 Stages of Small Business Growth: How to Fuel Your Success

Turning a small business into a larger one is a huge undertaking – one that isn’t always replicable from business to business.

From limited resources to fierce competition, the road can be bumpy, and understanding the various stages of growth and the challenges it can bring is crucial for overcoming any obstacle.

By streamlining operations, enhancing communication, and providing valuable data analytics, business process management (BPM) software empowers small business owners to make informed decisions that drive growth and success at every stage of their business journey.

If you’re trying to grow your small business, understanding where you stand currently is the first step in developing a strategy for moving it up and to the right. Let's explore the five stages of small business growth.

Stage 1: Existence

Businesses in this stage are just starting up and primarily worry about customer acquisition and finding product-market fit. They are typically small organizations run by one or two owners/founders and have minimal business systems in place, if any.

Key challenges

• Does anyone want what we’re building?
• Who wants what we’re building?
• Can we build it well enough to sell it?
• Can we create cash flow?

Businesses in the existence stage often fail because there simply isn’t a market need for their products or services. The primary goal for businesses in stage one is to determine if the market wants what they are offering (and generate cash flow) before capital runs out. Businesses that do this successfully move onto stage two seamlessly.

Best practices

• Know your market by researching your target audience and their needs.
• Make a business plan to clearly outline your goals and strategies.
• Build your brand by creating a strong and consistent brand identity.
• Prioritize customer service by focusing on building strong relationships with customers.
• Manage finances by keeping track of your cash flow and expenses.
• Use technology to implement tools that streamline operations and improve efficiency.

Stage 2: Survival

Businesses that reach the survival stage are typically still small, tightly run organizations with minimal business systems. However, they have found a customer base that is willing to pay for their products or services and are able to satisfy them sufficiently for repeat business.

Key challenges

• Can we generate enough cash flow to break even for now?
• Can we generate enough cash flow to break even indefinitely in our current state?
• Can we generate enough cash flow to generate a return?

Businesses that have reached the survival stage often fail because they cannot sustain their created cash flow. Their primary focus at this stage is building a stable business model that will allow them to break even in the short and long term.

Many small businesses stay in stage two for their existence, scraping by on meager margins. However, to move on to stage three, a business should focus on developing enough cash flow to generate a return (profit).

Best practices

• Optimize cash flow by closely monitoring and managing your income and expenses.
• Control costs by identifying areas to reduce expenses without sacrificing quality.
• Build customer loyalty by focusing on excellent service and engagement with existing customers.
• Diversify offerings by exploring new products or services to attract different customer segments.

Stage 3: Success

Once a small business has begun to generate a profit, the owners face a decision: What do they do with the profit? Most owners will use it to fund other things (personal or business) or reinvest in the company to grow it further.

Key challenges

• What techniques do we need to build to keep the business profitable?
• How do we hire the right staff to help us achieve our goals?
• How do we finance future growth if that’s our goal?

Businesses that fail during stage three do so because the profitability they’ve developed crumbles, often reverting back to stage two. This often means an external market shift for owners who use profits to fund other things. However, for owners in stage three who choose a growth track, failure often occurs because they neglect to develop the systems and staff to sustain the business while they attempt to do so.

Businesses that choose not to grow further should focus on sustainability and systems, whereas businesses that desire to grow further need to find resources (financial and staff) that can help them do so and maintain sustainability. Businesses that do this successfully move to stage four.

Best practices

• Invest in social media and content marketing to strengthen your brand presence and attract new customers.
• Enhance operational efficiency by streamlining processes to improve productivity and reduce costs.
• Focus on customer feedback by continuously gathering and analyzing it to improve products and services.

Stage 4: Takeoff

Businesses that reach the takeoff stage are growing exponentially, and managing that growth becomes the top priority. At this stage, businesses become more decentralized, creating challenges smaller businesses do not face.

Key challenges

• How do we hire the right people quickly to keep up with demands?
• How do we manage rapid growth internally?
• How do we fund further growth?
• How do we avoid growing too quickly and overextending ourselves?

Businesses in stage four are often described as “rattling rocket ships” and are growing so rapidly that if not managed properly, they could end up collapsing altogether.

At this stage, business owners face the reality that they can no longer be involved in everything due to the complexity of the organization and the speed at which it is expanding. Delegating responsibilities to talented management staff who can carry the torch is key.

Stage four businesses should focus on a growth strategy to fuel expansion sustainably. Outside investment is a common business funding strategy that many companies use to help them scale at this level, as well as find ways to increase demand through brand awareness and marketing. Those that survive the “rattling rocketship ride” move to stage five.

Best practices

• Scale operations to expand production and service capacity for increasing demand.
• Strengthen financial management to ensure robust practices that support rapid growth and effective cash flow.
• Develop strategic partnerships to collaborate with other businesses and enhance market reach.
• Invest in technology to improve efficiency and support the growing demands of your business.
• Enhance marketing efforts to increase brand visibility and attract a larger customer base.

Stage 5: Resource maturity

Rapid expansion doesn’t last forever, and businesses entering stage five face the reality that their growth is slowing. Businesses that reach this stage have well-developed systems and sufficient resources (both financial and human) to start focusing on stabilizing in orbit rather than worrying about reaching it.

Key challenges

• How do we stabilize and streamline our operation for the future?
• How do we keep our team engaged, even though we’ve slowed down?
• How do we stabilize without losing sight of the importance of innovation?
• How/where do we find new markets to grow into?

Businesses that reach stage five often fail because they lose momentum. Their teams become complacent, and the business stops “playing to win” like they did when they were younger and scrappier.

Businesses that thrive in stage five and beyond focus on developing rock-solid systems and management structures that provide stability while also remaining nimble in light of market changes. They find ways to innovate and stay hungry like a smaller company but at scale.

Best practices

• Optimize resource allocation to ensure that personnel and assets are used efficiently.
• Implement advanced data analytics to gain insights into performance and drive informed decision-making.
• Foster a culture of continuous improvement to encourage innovation and adaptability within the organization.
• Strengthen leadership development programs to build a skilled and capable management team.
• Expand market presence by exploring new markets or diversifying product offerings to sustain growth.

What got you here won’t get you there

It’s easy to think that what has worked to get your business where it is today will always work. However, some strategies and tactics simply do not scale. So, as you’re trying to reach the next stage or milestone, remember: what got you here likely won’t get you there. 

Discover strategies to conduct a thorough risk assessment and safeguard your business. 

This article was originally published in 2020. It has been updated with new information.