Converting a small business to a larger one involves a monumental process that is unique to each company. However, there are several trends and similarities among small companies, primarily determined by what stage they are. You can categorize your companies based on a five-stage growth approach for small businesses.

When you’re trying to build your small business, figure out where you stand right now. Therefore in this article, we will give some shed into the five stages of small business growth.

The Five Stages of Small Business Growth

The following are the five stages of small business growth and the main factors to consider at each stage.

Stage-1: Existence

During this stage, startups are primarily concerned with procuring customers and determining how well their products match the market. These are usually small businesses with only one or two owners and very few business systems in place.

Approximately 20% of small businesses fail within their first year, and 50% fail within their first five years in the Existence stage. CB Insights’ research is usually caused by a lack of market need for their products and services.

In this stage, businesses must determine whether the market needs what they’re offering before running out of money. When companies succeed at this, they move seamlessly on to the next stage.

Stage-2: Survival

Despite its early stages, an enterprise at this stage is a more effective and profitable business. Therefore, it is next necessary to ensure that profit remains intact. Because of this, companies in this phase have to search for customers while also considering the return on investment.

Small businesses often remain in this stage for the rest of their lives as they survive on narrow profit margins. The company must first generate enough cash flow to generate a profit before moving to the next stage.

Stage-3: Success

After the proper protocols and profits have been achieved, the small business has been successful. You should continue to achieve or maintain the level of success you’ve completed at this stage.

Small businesses should concentrate on sustainability and systems, whereas companies that want to expand should focus on acquiring resources (financial and human) to help them. Those businesses that accomplish this move forward to the next step.

Stage-4: Takeoff

A small firm will now have to increase its capital to handle the increasing number of clients at this stage. It requires additional personnel, resources, and equipment and better processes as well. Small businesses have the potential to become large corporations at this point. If, however, the organization is poorly managed, the company may become obsolete due to inefficient expense management compared to revenue.

Stage-5: Resource Maturity

Upon reaching the maturity stage, a small business is ready to diversify. However, due to the increased size of the company, it now operates more slowly. Despite this, a mature company is still likely to be able to adjust to market changes.

Thus, diversification and the identification of new products and markets are necessary, as is expanding the client base beyond the scope of the original business model. Now, different components of the company will be growing through different phases simultaneously, so the company will remain to fluctuate.

The Takeaway

The above is a summary of the five stages of small business growth. Understanding these stages will assist you in leading your small business to success.