Where are you in the five stages of small business growth?

5th May, 2015

If you started your own business some years ago, no doubt you will be able to look back now and appreciate that it has changed significantly over the years. Most businesses go through a life cycle with distinct phases. It’s interesting to take a look at the common phases and plot where you are now so you can become aware of how to best plan for the future.

Phase 1: Start up

Perhaps you are working for someone else and often think you could do better yourself and create financial freedom. Or maybe you simply have an entrepreneurial streak and are motivated to do your own thing, so you hang up your shingle and start your own business. If you have done this — or know someone who has — you will know that in the early stages of a business, it’s relatively easy to grow it. You’re a new entrant to the market with a new value proposition, and in many cases, that alone will attract customers. But also, every time you meet someone, you let them know you’ve started up on your own and ask if they are aware of anyone who might need your products or services. Every time the phone rings, you grab it, hoping it will be a potential customer. You’re out at networking events proactively seeking out new work. And your business gets off the ground and grows. But then, you hit Phase 2.

Phase 2: You get busy!

You know you are at Phase 2 when you notice you stop doing the things you used to do when you started off. When the phone rings, your heart sinks — it might be a customer complaining. You’re too busy to go to networking events any more. You stop asking for referrals, knowing that you’re struggling to handle your existing work. And surprise, surprise, your growth rates slow (or stop.) At this stage, you start to feel frustrated and maybe think you’d have been better off staying in an employed role working for someone else. After all, it would be far less stressful. What you also start to realise in many cases is that the financial freedom you strove for when you started out does not seem to be happening as planned. Sure, you might be earning reasonable money, but often you have no time to spend it! As a wise man once said, true wealth is discretionary time. There are three options at Phase 2:

  1. Go small again to get back some time.
  2. Do nothing about it and continue to be run off your feet, stressed and overworked.
  3. Decided to grow and gear up to do so by hiring more people.

Most business owners choose option 2, which in the cold light of day is the worst option. Remember what Einstein said: doing the same things over and over again is a great definition of insanity.

Phase 3: Controlled growth

If you choose option 3, you go for growth. The statistics show the minority of businesses do this. Failure rates of small businesses before the five year stage are common, and a very small proportion reach $10 million in turnover. But if you’re going to go for growth, you need to be aware of the following key points:

  • You are going to have to settle for success, not perfection. Of course, no one will ever be as passionate about your business as you will, and you may think very few people can do the work as well as you. You’ll have to live with that because you can’t physically do it all yourself when you grow.
  • As you grow, take a view that you should hire people who are better than you are. That’s the best way to improve your business as a whole.
  • Look for the more effective ways to expand. Do you need more customers or new products — or both? Do you stay in your local area or look to expand?
  • Bring in marketing expertise specifically focused on lead generation activities. You cannot grow consistently through personal relationships as you get bigger. You need new marketing activity to generate new customers.

Phase 4: The ‘next’ phase

Sounds ambiguous but let me explain. In most industries, the landscape in which you are operating changes over time. A hackneyed example of this is if Henry Ford had asked buggy whip customers what they wanted to enhance their travel experience, they would have probably said a faster horse! Most industries go through change, driven by technology, legislation, offshore labour availability, environmental issues or new opportunities. How you respond to these will determine whether you enter Phase 4 — ‘next’ phase, or you skip Phase 4 and go straight to Phase 5. What this means is that you need to be consciously aware of what is happening in your industry and be ready to be ahead of the game. Jump into those new opportunities before your competitors. To do that, you need time to think — another reason you need to hire good people and get yourself out of all of the doing.

Phase 5: Decline

If you miss Phase 4, your business will likely decline. You’ll find revenue will stagnate or fall. It will become harder and harder to win new work. You’ll find your prices are being squeezed by more nimble competitors embracing new technology. You might find it hard to attract or keep good team members because leading-edge competitors woo them away.

How does this align with your business?

Many businesses find themselves in this phase, not by design, but by default. So if you’re an established business and you want to avoid decline, take action now to identify what your Phase 4 might be and start to do something differently to prolong your business life.