It seems that the journey of every small business is unique. You might start with a great idea or identify a gap in the market. You could sell services online, create a physical product, or combine the two. You might finance the business yourself, get money from friends and family, or take out a small business loan. When it comes to marketing, sales, operations, technologies, and customer services, the options are seemingly endless.
Despite all these variations, there are some commonalities in how small businesses develop and grow. Research for the Harvard Business Review identifies five key stages in business development:
- Resource Maturity
It’s worth exploring these stages so you can decide where your small business sits—and where it’s going next.
Small Business Development Stage Zero: Formation
This stage isn’t mentioned in the HBR report, but it’s critical. The formation stage involves all the things you need to do before you even start acquiring customers or selling products and services. At this stage, you will need to:
- Legally form your business, assuming you’re not running it as a sole proprietorship.
- Register for federal, state, and other taxes.
- Setup basic business accounts.
- Get any required licenses and permits.
- Raise seed money—whether from bootstrapping, friends, family, loans, or other sources.
- Set up the basic systems to run your business.
- Complete other foundational tasks.
Once you have the basics of your business in place, you can move to the “Existence” stage.
Small Business Development Stage One: Existence
Your brand new business is formed and ready to go. In the “Existence” stage, you’ll focus on acquiring your first customers and selling your products and services. You will need to:
- Start getting customers through marketing and other means.
- Sell your business products and services to customers.
- Arrange for the provision of services and delivery of products in a consistent way.
- Broaden your sales base so your business can start to become self-sustaining.
- Get basic financial management in place.
- Work on streamlining business processes like sales, customer service, operations, logistics, and other areas.
At this stage, you’re either doing everything yourself, or you’re working with a handful of other people—effectively, you are the business. There’s not much focus on formal planning or looking to the future, instead, you’re getting through each day.
Small Business Development Stage Two: Survival
In the survival phase, you have an established customer base, and are selling enough products and services to keep money coming in, meet your commitments, and pay yourself and your staff. At this stage, you’re looking to establish and sustain your business over the medium term.
You will need to:
- Get strong, forward-looking financial management in place.
- Regularly generate enough revenue and cash flow to pay everyone and manage day-to-day expenses.
- Start getting a cash buffer in place to weather more difficult times.
- Think about how you will maintain, repair, or upgrade business assets.
- Decide on how you’re going to grow the business to the next stage.
- Make improvements to how you do things and become more efficient.
At this stage, you’re likely still doing most of the work within your business. You may have a few more employees now, but they only make business decisions when consulting with you. There’s still not a huge amount of long-term planning.
Small Business Development Stage Three: Success
This is the stage where you start to make decisions about strategies and longer-term goals. At this point, the business is reliably earning enough money to meet all of its commitments, has a healthy customer base, and generates profit. The owners can make a decision here—whether to finance further growth or step back from the business.
Stepping Back from the Business
Some owners will want to disengage from the business to pursue other ventures, start new businesses, or live comfortably on the business profits.
To do this, you will need to:
- Have healthy, reliable, growing finances including a comfortable cash buffer.
- Hire competent managers that can step into roles you used to perform.
- Optimize business processes and technology to remove waste.
- Start delegating key responsibilities to trusted individuals.
- Maintain the status quo and focus on slow and steady growth.
Once you have completed these areas, you can step back from the business and it will largely manage itself.
Growing the Business
Instead of disengaging, some entrepreneurs will decide to go “all in” on accelerating growth.
You will need to:
- Create a solid strategy for medium- and long-term growth, focusing on the future.
- Understand your appetite for risk, as investing in growing the business could jeopardize the organization.
- Ensure that the core of business remains profitable and hire strong managers.
- Install and optimize systems, processes, and technology to handle predicted growth.
If you decide to grow the business, you will be very involved with setting strategy, direction, and goals for growth.
Small Business Development Stage Four: Take-Off
At this stage, most of your attention is on growing rapidly and ensuring you have enough money and leverage to take advantage of the marketplace. This will require strong financial discipline and the ability to delegate responsibilities.
You will need to:
- Ensure you hire the most talented employees and incentivize them for rapid growth.
- Trust employees by setting clear goals and delegating the proper level of responsibility.
- Balance your risk and reward as you may need to take on significant levels of debt.
- Decentralize the business so you can step back from day-to-day responsibilities and focus on long-term gains.
This is the stage where small businesses can become medium-sized businesses, or even bigger.
Small Business Development Stage Five: Resource Maturity
The final stage in business development involves innovative future thinking, maintaining agility and flexibility, and becoming dominant in the marketplace.
You will need to:
- Consolidate your revenues, finances, and profits brought on by rapid growth.
- Continue innovating through creating novel products and services.
- Lead within your marketplace and become a major influencer.
- Expand the management force to deal with further growth.
- Embed entrepreneurial, agile thinking throughout the business.
- Keep looking to the future, growing, and creating more value.
At this stage, you’re well on the way to becoming an enterprise, and a force to be reckoned with. You will keep progressing onward and upward, perhaps moving toward an IPO or selling the business for a considerable profit.
There you have it—the growth and development stages of a small business. From scrappy startup to dominant force, you can succeed. Look at where you are now in your journey, and get the pieces in place for your next steps. Good luck!