The Stages of Small Business Growth

In the May 1983 issue of the Harvard Business Review, Neil C. Churchill and Virginia L. Lewis published The Five Stages of Business Growth. That study, still highly relevant, can help small business owners with planning and control system implementation. It can also help them anticipate some of the problems they may be facing as their business grows. Find out more below.

The First Stage – Existence

In the first stage, the business must attract customers and provide the products or services it promises to deliver. Planning and control system integration do not receive much attention in this phase, as the business owner, who must juggle a lot of tasks, is simply too busy working and supervising the few workers he or she has employed.

The Second Stage – Survival

Many small businesses don’t make it to the second stage — Survival. Those who do make it, however, have managed first to prove that their business model works, and second, to keep enough customers to stay alive. The business owner, who now has more employees but still does most of the administrative work, faces concerns related to the cash flow. Planning and control system development are in their early phases.

The Third Stage – Success

When reaching this stage, some small business owners focus on expanding their business, while others on keeping it profitable. Successful small businesses employ one or more managers who assist the owner, who does most of the planning and control system implementation. The cash flow is good at this stage and new professional employees are hired. It is toward the end of this stage that some owners sell their business, or agree to a merger with another company.

The Fourth Stage — Take-off

Small businesses that reach this stage aim for sustaining the rapid growth and do a lot of planning to finance it. Other issues may include a high debt-equity ratio and the decentralization process. While the owner and the business are usually no longer synonymous, the owner remains in control of the stock. After this stage is reached, some owners sell their business for a profit.

The Fifth Stage — Resource Maturity

The final stage of growth is characterized by the company’s effort to control the financial gains, increase them, and hire new managers. Planning and control system integration are crucial at this stage to ensure the business retains its profitability and continues growing. These, together with the company’s entrepreneurial spirit, are often what decide the fate of the company, whether it ‘ossifies’, sacrificing innovation to maintain viability or keep on innovating and improving to stay ahead of competitors.