Business growth is a dream of every profit-making entity. The owners of the entities always look forward to expanding their businesses. They also wish for a business that maintains a positive growth rate into an unforeseeable future.
Some people think that business growth happens overnight. Others think that business growth is a forward-only exercise. However, every business that experiences growth has to undergo five stages.
Before we delve into the five business growth stages, let us explore the dimensions and benefits of business growth.
How to know that your business is growing
According to Future Trans, the following are signs that your business is growing:
1. Strong demand for products and services
If your actual sales exceed the sales you had forecasted, your business is growing. High demand for products and services makes them last for a short time in the market. So, you have to increase your production level to meet the demand.
2. Profitable product lines
If the market acts in your favour, every product that you will introduce in the market will become acceptable. Also, such products will have an optimal profit margin. So, each product that you sell has to make a profit for your company to experience growth.
3. Weathering every uncertainty
Every business faces internal and external uncertainties and risks. You can control the internal uncertainties but you can only adapt to the external ones. If you are managing both sets of uncertainties successfully, your business is growing.
4. Reception of positive feedback
If your customers say good things about your business, you are already on a business growth path. You will also find positive reviews on sites that measure customer loyalty.
5. High level of working capital and cash flow
A business that has a high level of working capital shows that it is highly liquid. Such a business can meet its expenses without straining. Also, such a business has more revenue than expenditure. The situation denotes high profitability and efficient management of costs.
Your business can realize a high cash flow when the days outstanding are few. In such a scenario, the business turns its inventory into cash within a few days. The situation shows that the business is experiencing a high market demand that supports growth.
Benefits of business growth
Knowing the benefits of business growth motivates you to pursue growing your business. Sometimes making a living out of a business can make you blind to business growth. However, getting to know other benefits will make you invest in strategies that will foster growth.
What are some of the benefits that you need to know?
1. Large firms influence the market prices
If your business grows into a large firm, you will command the levels of prices that the market will employ. Any firm that sells above your market price will lose its customers to you. Also, customers can question the quality of products that sell below your set price. So, you will have an upper hand in controlling the profitability of your business.
2. A large business firm makes the best out of economies of scale.
When your business expands, you will manage to produce more at a lower cost. For example, you will be able to buy in bulk and enjoy huge discounts and low buying prices. Also, you will be able to spread your overheads over large sales. So, you will run a highly-profitable business.
The five stages of small business growth
Now that you are aware of the dimensions and benefits of business growth, it is time to know the science behind the growth.
Notably, all small businesses experience similar challenges in different stages of their growth. Understanding what a business entity goes through and when to expect the challenges increases the entity’s operational preparedness.
Business translation services, a company that meets your language translation needs, identifies the following five stages of small business growth:
1. Existence stage
During this stage, every small business worries about getting customers. The business also focuses on the production and delivery of the ordered products and services. In this stage, the business grapples with how to make its operations viable. It also minds how to increase sales and manage its available resources.
When a business entity is at the existence stage, its owner manages all operations with aid from a few employees. Its systems are mostly informal, and production activities are not stable.
A business is at a high risk of closure during the existence stage. It is still a startup, and customers are yet to accept its products and services. If it does not win the trust of its customers, the business runs out of capital, and it closes.
2. Survival stage
If a business survives stage 1, it graduates to stage 2, survival. During the second stage, the business demonstrates that it is feasible. In other words, it shows that its operations are in line with what people need.
The main challenge during the survival stage is to balance the revenues and expenses. So, a business worries about breaking even to get back its initial capital. It also thinks about meeting the cost of replacing or repairing its assets.
A business also focuses on making enough working capital to sustain its operations and finance its growth.
During the survival stage, the company is still small in size. However, the owner may have employed a manager or a supervisor that works closely with the owner. Additionally, the business starts to formalize its operations.
There are two options during the survival stage. First, the business can expand and graduate to the third class. Second, the business may stagnate, fall back to the first class, and eventually close.
3. Success stage
During this stage, a business realizes sufficient cash flows and working capital. So, the owner faces a dilemma. He should choose between expanding the business or making it more stable.
The success stage has either sub-stage 3D or sub-stage 3G. What is the meaning of the sub-stages?
i. Sub-stage 3D
The sub-stage 3D is also the Success-Disengagement sub-stage. In this sub-stage, the owner attains quality economic health, significant market share, and efficient market penetration in their business. Also, the owner enjoys average or above-average profits. If the market forces remain constant, there is a high likelihood that a business can stagnate at this stage for a long time.
During the sub-stage 3D, the business requires a functional manager to prevent cash drain. The business also becomes formal with different systems in place. Also, the owner starts to disengage from the business and leaves it in the hands of the managers.
Last, the owners of sub-stage 3D businesses can opt to run it, sell it, or merge it with other successful entities. However, this can happen if the business manages to adapt to the changing market circumstances. If a business entity cannot withstand the market circumstances, it goes back to the survival stage.
ii.Sub-stage 3G
The sub-stage 3G is also the Success-Growth sub-stage. During this stage, the owner thinks of expanding the business. If the available business resources cannot support the growth, the owner solicits financing. The owner takes advantage of the stable financial status to marshal for debt to expand their business.
However, the business has to maintain its profitability levels to support growth. Forecasting becomes fundamental during this stage to assist the business prepare for future profitability and growth. Notably, the owner does not disengage from the business, unlike in sub-stage 3D.
4. Take-off stage
During this stage, the business struggles to grow fast and finance the growth. So, the business owner explores the following areas:
i. Delegation
The owner considers handing over the running of the company to professional employees. The move seeks to improve the managerial effectiveness that will support the rapid growth of the business. Second, the owner faces a dilemma. They have to choose between delegating the operations but managing the performance of the business or disengaging fully.
ii. Cash
The owner also wonders whether the available resources will meet the expected growing demand. They have to assess whether they can also tolerate high debts that will exceed their capital.
The take-off stage decentralizes most of the business operations. The section managers have to be aware of the complex and growing business environment. So, they require strategic and operational planning.
The take-off stage is significant in business life. A breakthrough against all challenges makes a business become a large firm. Importantly, many small businesses fail at stage 4 because of the anxiety to grow fast. So, they run out of cash. However, the owner can sell a stage-4 business at a profit.
5. Resource maturity stage
A business that gets to stage 5 has two main concerns. First, it has to control and consolidate gains from the rapid growth. Second, the business should retain the advantages of being a small entity to maintain the entrepreneurial spirit.
During stage 5, the management should always act fast to control any arising inefficiencies. The business has an adequate workforce and resources to maintain its operational status. Also, the owner and the business are separate entities. Last, all operations run efficiently during this stage.
However, the managers have to take care not to drive the business into the ossification stage. The Ossification stage is the sixth business growth stage that features a lack of innovation and risk aversion. Such occasions reduce the overall profitability of a small business.
During the business growth journey, the following factors change in importance: financial, personnel, systems, and business resources. Also, the owner’s goals, operational abilities, managerial ability, delegation appetite, and strategic abilities change.
Now that you have known the five stages of the growth of a small business, it is time to assess your business to determine its stage. Afterward, strategize to move it to the next stage.