What Are the Four Stages of Business Growth?
Growth is a necessary part of change and development in business. An expanding enterprise will go through a standard business lifecycle as its market share increases.
As a company’s size and revenue climb, it will enter the maturity stage, becoming more established in the industry. Although steady growth, expansion, and maintenance are the ultimate goals of any business, some will experience failure, decline, and eventual closure. According to the Bureau of Labor Statistics, about 35 percent of new companies will fail during the first 24 months, approximately 50 percent will fail within five years, and 65 percent of businesses will close within 10 years of operation.
Are you interested in turning an idea into a thriving, profitable business that allows you to enjoy success? Lucky for you, we developed a guide to help you understand the various business growth stages.
What Are the Stages in the Business Lifecycle?
The business lifecycle refers to the stages and processes all businesses go through, from inception to eventual stability or decline. Most experts believe there are four principal stages of business growth—startup, growth, maturity, and renewal or decline. However, some businesses may experience additional stages of growth, such as a shake-up or market introduction.
The Four Stages of Business Growth
It’s important to understand the four stages of business growth to launch and manage a successful business. Recognizing these growth phases can help you plan for your company’s next stage and drive your business forward. However, failure to identify your company’s current growth phase could lead to stagnation or decline.
Phase 1: The Startup Stage
The first stage of the business lifecycle—the startup or development stage—tends to be the riskiest. This is the stage when a business concept turns into reality. Many important things happen during the startup stage. This is when it’s crucial to obtain new customers, onboard employees, build a brand identity, refine your products or services, and stabilize your cash flow.
Building a solid foundation during the startup phase is critical. According to Forbes magazine, up to 90 percent of startups fail. Some common reasons for failure include not having enough cash, lacking market demand, or failing to develop a robust and realistic business strategy.
How can you ensure that the startup phase is successful? Many successful businesses have found success using an industry-respected growth-to-goal model, which can help businesses navigate the uncertainty of the startup phase.
Here are a few essentials to ensure rapid growth for your startup:
- Develop a detailed business plan.
- Focus on hiring the best talent possible. Make sure to hire employees whose goals and values align with your business.
- Have a set of established goals and well-defined timelines to accomplish them.
- Ensure you clearly understand your customer demographics. This will require some research, along with trial and error.
- Continue carrying out market research to identify growth opportunities.
Be prepared to wear many different hats during the startup stage. You will have to focus on brand awareness, deal with new clients, and resolve any “teething” issues. The startup stage requires courage, and you will inevitably have to take calculated risks. However, your hard work and efforts will pay off if you stick to your plan and focus on your objectives.
It’s also necessary to remain flexible during this phase. It’s not uncommon for entrepreneurs to discover niches in the marketplace that they didn’t initially understand. When this occurs, it can be helpful to explore these new opportunities while still focusing on growth and your primary business goals.
Phase 2: The Growth Stage
Businesses enter the second phase once they’ve established a strong customer base, tangible profits, healthy cash flow, and increased market share.
The growth stage typically occurs after a year or two of operations. At this stage, companies should have established standard procedures to encourage business growth.
At this point in the business lifecycle, stay focused on your goals. Once you’ve established your business, it’s tempting to take your foot off the gas and enjoy the initial success. However, there’s still a lot of work to be done. One of the greatest challenges during this phase is driving consistent growth that allows you to gain an edge over competitors.
What steps are necessary to ensure the growth stage is successful? Here are a few tips that can help:
- Create a strategy to recalibrate your business plan and match current needs.
- Conduct an in-depth analysis into what drives profits and focus on developing those areas.
- Continue to carry out market research to create realistic, accurate demand forecasts.
- Outsource repetitive, time-consuming, and non-core activities.
- Continue to explore business growth opportunities.
- Delegate authority and responsibilities to trusted employees within the company.
During the startup period, you probably took on many roles and responsibilities to get the business established. However, the growth period is a time of transition. It can be helpful to delegate responsibility to trusted members of your team. This step is essential in the business lifecycle because it gives you more time to focus on the core aspects of running and maintaining a viable business.
Phase 3: The Maturity Stage
The maturity phase of growing a business will feel different from the first two stages in the lifecycle.
During the growth stage, you had to manage your business and work hard to accomplish your goals. As you move through the maturity stage, your primary objective is to ensure that your revenue doesn’t stagnate or go into decline.
The maturity stage is characterized by stability and steady cash flow. A mature business has control over its customer base, so you’ve likely established a solid market share in your industry. You are also somewhat protected from the risk of competition with similar startups.
During the maturity stage, you must focus on continuing to drive growth. Stagnation and lack of growth are the biggest threats to your business during this phase.
How can you ensure your organization reaches the fourth stage of business growth? Here are a few tips taken from successful business leaders:
- Continue to explore new markets. Can your company offer products and services similar to your current catalog? Is there a demand you’re currently not meeting?
- Focus on research and development to create new products or services for customers or improve what you currently offer.
- Build on customer loyalty to increase profitability and secure cash flow.
- Consider the benefits of selling the business or merging with another established company.
Remember that even as a mature business, you still have to seek out opportunities to expand and grow. During this stage, you can continue to increase your market share or even branch out into new areas.
Phase 4: The Renewal or Decline Stage
The final part of the four-stage business lifecycle is the renewal or decline phase. Since establishing your business, market conditions, consumer behaviors, and purchasing habits have undoubtedly changed. Your organization’s response to these changes matters, leading to adaptation and evolution or decline.
To ensure business renewal, it’s important to demonstrate strong leadership skills and flexibility to adapt to changing circumstances. This may require upgrading your technology, pursuing new opportunities, developing new products or services, or learning new skills to boost your competitive edge.
There are a few warning signs that signal the risk of decline. However, there’s still time to reverse your organization’s weakening market share. Here are some common red flags that can lead to business decline if not addressed:
- Employee turnover is increasing. Are employees leaving for jobs at other companies?
- There are online complaints and poor reviews about your products or services.
- Clients are paying their bills late or later than usual.
- Teams are finding it difficult to collaborate.
- Management is showing a lack of innovation, organization, and leadership.
- Your company’s market share is decreasing, and competitors are producing better products.
It can be difficult to differentiate typical blips in the market from a steady decline. However, experiencing several years of decreasing revenue is a major warning sign your business can’t afford to ignore.
What should you do if you’re experiencing business decline? You typically have two choices: Reinvest or sell.
Reinvesting in the company can bring about renewal. However, you will need to conduct thorough market research, dramatically modify your business plan, and consider investing in new technology. If you decide to sell, get the best advice from a trusted business consultant. You should have a solid exit strategy to obtain the best deal.
The Stages of Business Development: The Bottom Line
Regardless of the type of business you operate or its current growth stage, you must always focus on long-term goals and keep your strategies fresh. Surviving the first two stages of business growth takes time, effort, dedication, patience, and resources. Once established, you must build on your success to strengthen core products and maintain your customer base.
The key to long-term growth is effective management. After the maturity stage, every business will risk going into decline. Therefore, it is vital to pursue new opportunities, keep up to date with industry trends, and keep your workforce happy and engaged.
At Cunningham and Associates, we help businesses adapt to changing market conditions and drive continued growth.
Are you ready to learn more? Contact us today to learn how to navigate your startup through each stage of business growth.