5 Stages of Business Growth

Business Framework
Five Stages of Business Growth
This framework around small business

growth is based on the fact that all
businesses experience common problems
that arise at similar stages in their development. Familiarity with this
concept allows the business owner to attain invaluable insights.
Includes case examples.
Find our other documents at http://flevy.com/seller/learnppt

All businesses experience common problems that arise in similar stages
in their development—these patterns can be framed into 5 Stages
Executive Summary
This document introduces a framework for entrepreneurs to use when building and navigating their
business from a nascent, startup state to an enterprise with a global footprint. This framework is based
on the fact that all businesses experience common problems that arise at similar stages in their
development.
Familiarity with the Five Stages of Business Growth allows the business owner and business consultant
to develop invaluable insights, including:
Knowing what to focus on at what stage
Appropriate management style at each stage
Anticipation of key challenges at various points
Critical success factors through the company’s progression
Involvement of owner at various stages

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You can increase your or your client’s chances of building a successful company by
understanding and anticipating the stages of growth.
4
Contents
• Executive Summary
• Stages of Small Business Growth
- Existence
- Survival
- Success
- Take Off
- Resource Maturity
• Critical Success Factors
- Cash
- Owner’s Abilities
- Strategic Planning
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- Key Management Factors
• Additional Considerations
• Case Examples
7
In Stage III, Success, small business owners have an important decision—
to risk it all in hopes of great success or to maintain and sustain
Stage III – Success STAGE I STAGE II STAGE III STAGE IV
STAGE V
Resource
Existence Survival Success Take Off
Maturity
OVERVIEW Functional—functional
MANAGEMENT managers take over certain
• At this stage, the owner is running a successful business and has options for growth STYLE duties performed by the
• Option A) the owner can expand the business owner
• Owner takes the cash and the established borrowing power of the company and Option A) – maintaining
risks it all to finance the continued growth of the company STRATEGIC profitable status quo
• A key activity is to develop managers to meet the needs of the growing business FOCUS Option B) – Get resources for
• Option B) the owner can maintain the business’s success and existing operations, so growth
he can disengage and re-focus his energies on alternate activities (e.g. start a new
company, run for political office, pursue a hobby, retire early, etc.)
ORGANIZATIONAL
• The company can stay at this stage indefinitely, providing environmental change
STATE
does not destroy its market niche or ineffective management reduces its
competitive abilities
Systems installed bearing

KEY QUESTIONS & CHALLENGES
STATE OF forthcoming needs,
• Do I choose Option A) continue to invest and grow the company or Option B) maintain SYSTEMS & operational planning in the
the business and begin to disengage? PROCESSES form of budgets, strategic
planning is extensive
EXAMPLES
http://flevy.com/browse/document/five-stages-of-business-growth-249 Option A) Option B)
• The virtual, minimal effort companies advocated by Tim Ferriss in the Four Hour Work
Week (example of companies that choose option B in this stage) BUSINESS &
OWNER
Owner Business
10
Contents
• Executive Summary
• Stages of Small Business Growth
- Existence
- Survival
- Success
- Take Off
- Resource Maturity
• Critical Success Factors
- Cash
- Owner’s Abilities
- Strategic Planning
- Key Management Factors
• Additional Considerations
• Case Examples
13
Strategic planning becomes increasingly important as the company
becomes more complex with more offerings, markets served, and scale
Critical Success Factors – Strategic Planning
STAGE I STAGE II STAGE III STAGE IV STAGE V
Existence Survival Success Take Off Resource Maturity
CRITICAL
TO SUCCESS
Size and
Complexity
Strategic Planning
RELEVANT
OR NATURAL
BY-PRODUCT
In Stage V, Strategic Planning becomes an integral process and core competency—

many companies have dedicated Corporate Strategy divisions at this stage.
Source: Churchill & Lewis, The Five Stages of Small Business Growth, Harvard Business Review
16
Utilizing this framework, the business owner should adjust resources at
each stage to avoid and minimize potential problems
Preparing for and Avoiding Future Problems
At each stage of growth, different skill sets and resources are emphasized. This is why some
experienced people from large companies fail to make good as entrepreneurs or managers of
small companies—they may be good at delegating, but not good at doing.
Therefore, it is critical for an owner to recognize different sets of needs at each stage of growth.
The owner should carefully evaluate the following questions to best prepare and avoid future
problems as the organization grows:
Do I have the ability and diversity of people needed to manage a growing company?
Do I have now, or will I have shortly, the systems in place to handle the needs of a
larger, more diversified company?
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Do I have enough cash and borrowing power along with the inclination to risk
everything to pursue rapid, aggressive growth?
19
From a shop selling imported coffee beans and coffeemakers, Starbucks
has grown into an international billion dollar company
Case Example – Starbucks
STARBUCKS Existence Survival Success Take Off Resource Maturity
Started by 3 Starbucks was well By early 1980s, Starbucks hires IPOs in 1992
founders with an received and gained Starbucks had 4 Howard Schulz to Hires experienced
initial investment of favorable press in stores expand Starbucks executives
$9,050 in 1971 local papers 1 of the cofounders In 1984, acquires Institutes many
Opened 1 store Bought a used leaves due to burn- Peet’s Coffee & Tea operational
selling imported coffee roaster from out and opens first improvement
coffee beans and Holland and set up Starbucks to serve initiatives: e.g.
coffeemakers (not roasting operations coffee
– Employee training
brewed coffee in a nearby old Raises over $30MM – Centralized buying
beverages) building to maintain
By 1992, expands to – Hub-and-spoke
Modeled coffee costs
161 stores management
shop after Peet’s Opened a second
Experiences losses Continues to grow:
Coffee & Tea (only 1 store in 1972
during initial growth e.g. JV with
store in Berkeley,
years, but becomes PepsiCo, Dreyer’s
CA at the time)
profitable by 1990 Ice Cream;
corporate mail-order
business; int’l
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movies
Note that though the company was profitable by Stage III, during Take Off, for many
years, Starbucks was operating at a loss to fund its aggressive retail growth.
Source: Thompson & Strickland, Strategic Management, Starbucks Case Study
22
Web start-ups rely tremendously on Venture Capital funding to propel
through the high growth Take Off stage
Case Example – Web Start-ups
START-UPS Existence Survival Success Take Off Resource Maturity
Develop initial site With a slightly Service or product With Series B, fund Web startup is now
and launch beta refined product and has reached a rapid growth – a successful
release existing customers, defining milestone – including massive Considers IPO exit
Obtain initial seek out Series A e.g. reach critical marketing efforts, strategy
customers through funding mass, broke sales acquisitions of
grass roots Funding from Series threshold younger web start-
marketing A to hire first Running low on ups
Testing market idea employees to capital, need to look Many web start-ups
with rapid iterative continue product for Series B at this point are also
modifications development continue the looking to be
At this point, many momentum in acquired
web startups have growth thus far or
no plans to monetize risk going bankrupt
(which is a big
difference from other
small businesses)
To avoid bankruptcy, companies need to maintain their entrepreneurial culture by

continuing to innovate and staying relevant.
25
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Business Framework

Five Stages of Business Growth

This framework around small business

Find our other documents at http://flevy.com/seller/learnppt

Knowing what to focus on at what stage

Appropriate management style at each stage

Anticipation of key challenges at various points

Critical success factors through the company’s progression

Involvement of owner at various stages

Systems installed bearing

In Stage V, Strategic Planning becomes an integral process and core competency—

This document Dois aIpartial

STAGE I STAGE II STAGE III STAGE IV STAGE V

STARBUCKS Existence Survival Success Take Off Resource Maturity

STAGE I STAGE II STAGE III STAGE IV STAGE V

START-UPS Existence Survival Success Take Off Resource Maturity

To avoid bankruptcy, companies need to maintain their entrepreneurial culture by

Flevy was founded under the principle that

just to learn. • Billing

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