5 Development Stages of Small Businesses and Start-ups (Churchill and Lewis)

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5 Development Stages of Small Businesses and Start-ups (Churchill and Lewis)
Paula Kokare, Project Manager, Switzerland

As companies grow, they pass through different growth stages. Churchill and Lewis researched five development stages that companies go through as they grow and mature. Every development stage is characterized by different organizational structures, degrees of diversity, complexity, systems’ standardization, owner’s role, organizational and strategic goals. The five development stages are:
  1. EXISTENCE. The main challenge for the business in the first step is attracting the attention of customers and maintaining it. The ability to satisfy rapidly growing financing, time and effort requirements represent some of the dearest risks at this stage.
  2. SURVIVAL. To reach this stage, the business has already proven itself in the eyes of its customers. Further challenges here are related to business’s ability to manage the effective relationship between revenues and expenses. The owner at this stage still plays a major role in the success of the venture and the business is still in an ongoing struggle for survival. Inability to deliver the initially planned sales figures that have only marginal returns on invested time and capital represent the main risks, which may result in eventual sale or closure of the business.
  3. SUCCESS. Once a company reaches this stage, the business owner faces a dilemma – to continue rapid growth of the company and bring it to the next level or to maintain modest growth rates securing certain level of profitability and security for the owner himself. By choosing the growth option, the entrepreneur faces the need to improve efficiency, hire additional managers, and implement coherent systems.
  4. TAKE OFF. If the success stage is managed well, the company enters the take off stage where it has to maintain well managed operational and strategic processes to remain successful. The ownership and management of the company have become separated and the owner faces the ability to exit in order to enable company entering maturity stage. The risks in this stage remain around the owner’s ability to pass over responsibilities to management team and maintain manageable growth rate. See also the 4 main tensions of start-ups are facing.
  5. RESOURCE MATURITY. Main advantages for companies at this stage arise from scale benefits and the attracted talent. To remain successful, the company has to be able to manage coexistence of the entrepreneurial environment and financial discipline enforced by prior growth phase. If unsuccessful, the company may go down the path of ossification, which is characterized by lack of innovation and risk avoidance.
  6. ⇒ Are these development stages still valid for current start-ups?
    Source: Churchill and Lewis (1983) ‘The 5 Stages of Small Business Growth’, Harvard Business Review Business Review

The Developmental Stages of Firms Involve Ongoing Competing Challenges
Katie Pawley MBA, Consultant, United States
Existence and Survival are competing challenges that would continue through the duration of the business.
One of the challenges of operating a business is the client/customer base. As an entrepreneur I would prefer to acquire an existing business, with an established customer base, since this factor is the critical challenge of any business. The "initially planned sales figures" depend on the client/customer base.
Staffing consumes the majority of the business costs and must be allocated conservatively. Perhaps staff can assume multiple roles to maintain "financial discipline" within a smaller growing business, contributing to the "resource maturity" indicated in the sources for this discussion.


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