Find the best business loan rates (2021)

The 4 Stages of Growth: How Small Businesses Develop & Evolve

By Dock Treece Reviewed By Mike Lucas
By Dock Treece
By Dock Treece Reviewed By Mike Lucas

Much like living, breathing beings, businesses develop and evolve through a life cycle marked by startup, growth, maturity and, eventually, decline or renewal.

To ensure your company’s success into the future, you should know where your business currently lies on its evolutionary path, and how it can get to the next stage of business growth.

The truth is that many business owners fail to accurately identify the stage their business is in. Far too often business owners claim they’re in the “Growth Phase” simply because they see their sales gradually increasing year after year. However, there is a little more nuance to it than that.

Depending on where you are on your pathway to success, you need to adopt certain practices and position yourself for the next phase. Don’t get left behind like a Neanderthal dragging his knuckles through the mud; rise to your feet and evolve into a successful enterprise by following the steps of the business life cycle outlined below.

City buildings chart

1. The Startup Phase

Every business begins as an idea, and then, from the moment it’s created, becomes a startup. This constitutes the first phase of the company growth cycle, one which some businesses find themselves occupying for years. During this stage, your main priority is to find and obtain customers, develop a product or service, and build a brand identity.

If you’re wondering if your business is currently in the startup stages of business growth, consider whether you find yourself regularly asking the following questions:

  • Can we secure enough customers to become viable?
  • Can we deliver our product(s) on time?
  • Can our services compete with our competitors’?
  • How can we expand our sales base?
  • Can we secure enough cash to cover our accounts payable?

Business owners that regularly ask themselves any of the questions outlined above are more than likely stuck in the Startup Phase. At this point, the overarching strategy is to simply stay alive and live to see another day, all the while preparing and planning for breaking into the next stage.

As you might expect, this stage is a chaotic one, marked by turbulence and, far too often, self-doubt. However, of all the stages of business development, the Startup Phase most requires a confident and headstrong owner to steer the company toward the Growth Phase.

Breaking Out

The key to success in this stage is to take risks, explore new ideas, tweak your business model and turn what’s been proven to work into standard operating procedures (SOPs) that can be leaned on in the future. This is a critical juncture in many entrepreneurs’ careers since the Startup Phase is where most businesses fail.

Don’t let your business become a statistic—have fun with it, play around and focus on developing formal systems based on what’s worked so far.

2. The Growth Phase

You’ve broken into the Growth Phase when you know exactly what your business model is, and your customers do, too. At this point, you should have a refined marketing budget that is comparable to other similarly-sized companies in your industry or niche. The telltale indicators that a business is in its Growth Phase include:

  • Long-term business financing is secured
  • You no longer worry about turnover or making payroll
  • You’ve maintained multi-year client relationships
  • You’re regularly reinvesting profits into the company
  • You’ve hired several key high-level team members

During this stage, profits are strong and competition is tight. The preeminent challenge associated with the Growth Stage is maintaining effective management in the face of constant growth and expansion. To break through this stage, you need to develop your managerial skills as you grow your team by learning how to delegate authority and empower your employees.

Constant investment and reinvestment is the name of the game when in the Growth Stage. To continue to scale your business, you need to be willing to dip into cash reserves to spur future growth and tap into new revenue streams or secure external investment.

This is a good time to decide whether you should rely on debt or equity financing to fund your operations in the years ahead, as both encompass a range of benefits and drawbacks.

Scaling Successfully

To successfully make it through the Growth Phase of the company life cycle, you need to hunker down and formalize all of your workflows and operating systems. As your team expands and you make critical hires, one of the keys to business growth is to have standard processes that all team members can easily follow.

Develop these accordingly and delineate what they are in a spreadsheet or text document that can be shared with team members via a cloud network.

3. The Maturity Phase

The Maturity Phase is marked by rapid year-over-year growth and a solid core of employees who are now coming up on a decade or more of service. One of the most important company growth stages, the Maturity Phase, is marked by predictable revenues, the acquisition of other business entities and multiple product line spin-offs.

Mature businesses are also prime for investors to buy because they are consistent performers that can reliably generate revenues into the future.

For this reason, if you’re successful enough to grow a business to the Maturity Phase, you will need to consider whether it’s in your best interest to turn to an external investor or continue expanding the company.

While small business growth is about constantly expanding upward, growing a business at the Maturity Phase is all about vigilance and looking out for signs of decline. Some of the warning signs that a business may be declining include:

  • You’re often on the receiving end of late payments
  • Employee turnover is high
  • You’ve branched out from the business’s core
  • Criticism, disrespect and blame has increased
  • Aspirations have diminished and initiative declines

If any of the above indicators of decline are present in your business, you need to consider if your business is headed toward the last business life cycle stages: Decline or Renewal.

Your primary objective during the Maturity Phase is to ensure that you don’t start nosediving toward subsequent stages and, if you do, to take action immediately.

4. The Renewal or Decline Phase

The standard four stages of business life cycle include a Renewal or Decline Phase, in which the company can branch out into gradual decline or renew itself to adapt with the changing times. Often, the final stages of a business are not the responsibility of the business owner or their employees. In many cases, a changing economic landscape or adverse market conditions can steer a company toward irrelevance if they don’t act quickly.

At this turning point in the life cycle of a business, it is critical that the leadership of the company adopt new policies, SOPs and formal systems to suit their changing environment.

Much like how evolutionary successful species are those who develop better behavioral adaptations in the face of adversity, businesses have to stave off competition by constantly improving functions over time.

Think of some of the most famed American companies that folded: Blockbuster, Woolworth’s and Kodak. Each of these companies failed to make the critical changes necessary for survival that their competitors did. Let each of these once-great businesses serve as a reminder that no business is too big to fail—constant growth and renewal are needed to fend off decline.

The Renewal or Decline Phase is, of course, paramount for assuring a company’s success. During this phase, the leadership of the business must constantly be searching for new growth opportunities and new markets to break into. If necessary, costs need to be cut and budgets must be tightened to sustain cash flow. How a business chooses to adapt will determine whether it becomes a thriving enterprise once again or a failed venture.

City buildings with flags long-term growth graph

Positioning Your Business for Success

No matter where your company finds itself in its life cycle, you must always set your sights on strategies to ensure long-term business growth. The moment a business becomes too comfortable, it stops searching for new ways to create value. Over time, this can spell disaster.

The key to prolonged entrepreneurial success is to maintain the growth mindset characteristic of business owners in the early stages of their life cycle. This way, innovation, positivity and experimentation can help you embrace challenges as they arise and move forward toward a permanent state of business maturity.

Dock Treece
Dock David Treece is a finance analyst and contributing editor at Fast Capital 360 focusing on personal and small business finance. Dock is a former securities broker and investment advisor and brings more than 10 years of experience in investments and finance to Fast Capital 360. Dock has been featured by CNBC, Forbes and Bloomberg. He lives with his wife in North Carolina.
  Back to Top