The 5 Common Stages of Business Growth (What Stage Are You?!)
In today’s post, I am going to define the five most common stages in business growth (yes many of them overlap and can also be broken down into smaller stages), and why pinpointing the stage you are in is crucial for the future of your company. 80% of new businesses fail during the startup phase never attaining any real growth. Determining the stage your business is in will allow you to ask the tough questions and put proper strategies in place to catapult you into a higher level, all while providing you a “real-time” understanding of where your company truly stands. Whether you are in the startup, growth, maintenance, or maturity phase, this post will provide you with key characteristics for each and ideas of what to do to get to that next phase.
Let’s dive right in…
Before this, your business was just an idea or concept. You were excited to simply “launch” your product or service, and had no real plan of action.
Decisions that you make in this stage will be integral to the future (or failure) of your company. You spend a lot of your time working in the business and, employees that you do have, wear many hats. A lot of your time is spent meeting new people and finding new ways to sell your product. This is a chaotic stage where you undertake a lot of turbulence taking larger risks. Your company will move through the following stages in this category; concept and research, commitment, traction, refinement, scaling, become established.
Common Characteristics: Exciting, but not easy
- Continuously implementing new ideas to see what works
- You do not have many (if any) set processes because you are still tweaking your business model.
- Getting a sense of the market and gathering funds while marketing is a high priority.
- There are no defined job descriptions or positions.
- Fighting for survival while getting the business up and running.
- You are leaning on outside sources for finances, or putting in a lot of your own money.
- Determining your target market and maintaining customers is still a struggle while building your brand identity.
- You continue to play with pricing and manage your cash flow very carefully.
- You are designing, building, testing, and honing your product and marketing plan.
- Towards the end of this phase, you are turning what works into standard operating procedures (SOPs).
- Annual revenue is generally less than $250 thousand.
Questions to ask yourself:
- Can we secure enough customers to become viable?
- Can we deliver on time?
- Can our services compete with our competitors?
- How can we expand our sales base?
Ramp-up/ Growth/ Build-up
Things in this stage of business growth, are a lot more stable (at least they feel that way). You begin thinking the sky’s the limit. Your existing client relationships should be maturing past the three to four-year mark. In this stage, you can begin to focus inward, building teams and hiring high-level people to run operations, and identifying barriers that are inhibiting growth becomes far easier. Your business is truly gaining momentum!
Common Characteristics: Still exciting, but far calmer.
- Clients can explain your business model to other prospects.
- You have a modest pricing level, set to increase with new clients.
- Turnover is decreasing in both employees and clients.
- Your place in the marketplace is solidifying as you are rapidly setting new organized processes.
- The financials have become more in-house than before and you have a refined marketing budget.
- You are formalizing all of your workflows and operating systems that are broken down enough that all new hires can understand them.
- Keeping supply up with demand efficiently is becoming easier.
- You have a solid budget and have achieved a positive cash flow.
- The business has begun to work for you, not as much you for it.
- You have begun to build to support any future growth.
- Annual revenue is generally between $250-$500 thousand.
Helpful tips in this stage:
- Strengthen your relationships with your current clients.
- Invest in your employees through training, education, and company culture.
- Maintain effective management in the face of constant growth and expansion.
- If you have not already, begin delegating tasks that you do not need to be hands-on with.
- Gather additional resources and have a clear understanding of where the business stands financially.
- Consider outsourcing tasks that you do not necessarily need to have done in-house. Hiring a virtual team can save you money while growing your company.
The line between the previous stage and this one is very blurred. Oftentimes, there are similar characteristics that may lead you to believe your company is in the other mentioned stage. A large difference is the leveling off in growth where, instead, you consider franchising, opening a new location, and even develop relationships with manufacturers in other countries. Your hard work seems to be paying off. You normally enter this stage shortly after finding stability in the previous stage. This stage can be maintained indefinitely as long as you have a process to adjust for a change in the market.
Common Characteristics: The calm has come, you’re a success, now what
- Your strategy is not only in place, but you are also developing a whole new and more broad plan.
- Your company is able to acquire smaller businesses.
- Systems and processes are nailed down and have become smoothe.
- The financial records are consistently in order and up to date.
- Hiring, training, and managing staff has become a simpler process.
- You have increased sales at a slow enough rate to afford the cost of sales, and have a final sense of cost and product price margins.
- You begin to venture into new markets by expanding products or service offerings or moving beyond the region and opening new locations.
- In the expansion part of this phase, your company is more focused on growing, where, in the maintenance area, you have found a plan and are more focused on executing it.
- Generally between $500 thousand and $1 million in annual revenue.
- You may be entertaining plans to sell or scale farther.
If you decided to expand beyond the maintenance phase, your company should enter the maturity and evolution stage. Your first employees are normally reaching eight to ten-year tenure and you are able to take regular dividends out of your business. Things have become relatively predictable, and the company can defend its market position while expanding into new territories using brand recognition.
Common Characteristics: Is it time for a change?
- The company should be growing by about 5% annually.
- You feel more secure, and professional management is running the day-to-day operations.
- The people in your company do not feel burned out and are comfortable in their positions and roles.
- The revenue is steady and predictable.
- You have acquired numerous smaller businesses and have multiple product line spin-offs
- The shiny “newness” has worn off.
- There is no longer a constant change to contend with.
- Flexibility has become far less possible.
- Many of the normal processes have become streamlined.
- You have achieved a national brand.
- Generally over $1 million in annual revenue.
Helpful tips in this stage:
- Decide whether to cash out or reinvest in the business to grow.
- Investors prefer to invest in companies at this stage because they have become more consistent.
- Be wary of signs the business is declining and take immediate action when it has.
- Keep your employees motivated and boost your company culture.
- Identify any operational inefficiencies and find solutions.
- Do a thorough investigation of the company finances.
You should be watching for signs of your business entering a decline in the previous phase, but if you did not catch it, there is still hope.
- You are often on the receiving end of late payments.
- The company has high employee turnover.
- You find that your business has branched far away from the original core.
- Disrespect and blame have increased as the initiative has decreased.
- Revenue has been declining for three consecutive quarters.
A company can consider branching out into a gradual decline or renew itself to adapt. The most common causes are changes in the economic landscape or adverse market conditions.
It is CRITICAL to adopt new policies, SOPs, and formal systems to suit the changing environment. Search for new growth opportunities and new markets to break into. Many owners have no idea they are in decline, but instead, consider themselves relatively stable. Take quick action and begin looking for ways to innovate.
According to the Exit Planning Institute, 80% of businesses with less than $50 million in annual revenue never sell.
Why does this matter?
All startups begin hoping to succeed. Success to them can be a small revenue and a few employees or an empire that expands nationally. Both are great, in theory, but both follow the same stages of growth. Maintain the growth mindset in the early stages through innovation, positivity, and experimentation.
Knowing what stage your company is in currently can assist you in knowing the right questions to ask to keep moving forward. Ask the tough questions in each phase to continue the growth, or know when to sell. I have always maintained the idea that every business should be built to sell. I took A1 Garage Door Service from $50 thousand in debt to millions in annual revenue because I asked the hard questions, I knew what phase I was in and I hit the ground running.
“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.”
“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.”
Now it’s your turn:
Let me know what phase your business is in currently below. How can I assist you in moving it forward or bringing it back from the brink?
My goal in this business is to assist other home service companies to reach their growth potential as I have.
Listen to my podcast at Homeserviceexpert.com/category/podcast/ where other experts are sharing their AMAZING advice as well.
In the latest episode, I interviewed Brad Weimert where we discussed how to create a thriving company environment to attract A-players.