Depending on who you ask, the growth stages businesses go through differ. Some people promote a growth cycle that contains five stages: existence, survival, success, take-off, and resource maturity.
Others suggest there are four stages: start-up, growth, maturity, and renewal/decline. A quick Google search will reveal plenty of other opinions about what exactly the growth phases businesses go through are.
What all these cycles have in common is they show a generalised version of how businesses grow. They also provide useful insights for business owners and managers who can look at the theories to gain insights into the types of challenges and opportunities their business may be about to face. This can be used alongside business growth measurements to help businesses prepare for the future.
The four stages of business growth
The four-stage theory splits growth into start-up, growth, maturity, and renewal/decline stages.
- In the startup phase, the company begins to find its place in the market. It needs to discover if there is room for its product or service and, if there is, what it needs to do to be successful. In this stage, companies generally have only a few employees who take on multiple roles. Challenges faced by companies during this phase include keeping hold of employees and making the best use of the limited cash available.
- When a company enters the growth stage it should have a solid business model and be working towards strengthening its market position. As the company grows, people must be hired to run the expanding sections of the business. The main challenge during this stage is balancing the increase in expenses required for growth with the still limited funds available.
- During the maturity stage, the company should be relatively stable. It should have procedures and teams in place that allow the business to run without too much input from the owner. The business should have plenty of cash allowing it to invest in opportunities such as new products or acquisitions. The main challenge is ensuring there is no complacency while staying ahead of competitors looking to disrupt the market.
- The renewal/decline stage is when stable businesses begin to see a decline in revenue. While it may not spell big trouble at first, at this point business owners should reinvest in the business to recement its market position, or, if the owners don’t have the motivation to do so, attempt to cash out before the situation worsens.
The five stages of business growth
The five-stage growth model is essentially two models. One has three growth phases and results in a company finding relative success for its size. The other is a five-stage model that sees the company become a big business.
- During the existence stage, companies focus on discovering whether the business idea is viable and, if it is, expanding to a size that is large enough to make it a success. There is unlikely to be a formal business structure and, assuming the idea is sound, the main problem is likely to be cash.
- During the survival stage, the business will focus on growing to a size that is large enough to make the business work. The major challenge is still getting enough cash to cover costs and finance the growth required to enter the next stage.
- The success stage is split into two. The success-disengagement stage is when the company has achieved stability and earns large enough profits to survive. The business should be able to last in this stage forever, assuming no environmental changes. The other option is success-growth. If a business goes down this path it will use its market position and strength to push through to the next level. Key challenges here include ensuring staff and procedures are in place to facilitate growth to the next stage.
- A business enters the take-off stage if it is successful with the success-growth stage. If managed well the company can become a big business or be sold to another party. If a business doesn’t succeed at this stage, it may drop back to one of the earlier stages of growth or go bust.
- In the resource maturity stage, a company has grown to near its maximum size. At this point, it will be a dominant force in the marketplace. Key challenges include putting in place effective management structures and ensuring the company stays adaptable enough to react to environmental changes.