Development Stages of Small Businesses and Start-ups

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Paula Kokare
Project Manager, Switzerland

Development Stages of Small Businesses and Start-ups

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.
Source: Churchill and Lewis (1983) 'The 5 Stages of Small Business Growth', Harvard Business Review Business Review

  Katie Pawley MBA
Consultant, United States
 

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