Small businesses have different dimensions for growth and they are characterized by varying elements such as different organizational structures, diverse management styles and more. On a closer scrutiny however, it is quite obvious that they share common problems, which arises at similar stages in their development. Here is what you need to know about the 5 phases of small business growth:
Phase 1: Existence
The main challenge of businesses at this phase is finding customers and delivering the product or service contracted for. The organization is a sole proprietorship business; the owner does everything and directly supervises the employees, who should be averagely qualified for the job. The principal objective of the company is simply to stay alive. The business owner performs all the important tasks, and is the major broker of direction, energy and capital.
Sadly, many companies struggle at this phase because of inadequate customer acceptance or lack of a viable product or service. In this scenario, the business owners may close the business when the start-up runs out of capital. But if they’re lucky, they may sell the business for its asset value. Businesses that survive this stage, will go ahead to become Phase 2 enterprises.
Phase 2: Survival
In this stage, the business has proven that it is a feasible business entity. It has sufficient customers and gratifies them adequately with its products or services to keep them. However, the key problem changes from sheer existence to the relationship between income and expense. Some of the problems businesses face in this phase include generating enough capital to break even, covering the cost of capital assets as they run out, generating enough cash flow to stay in business, financing growth to earn an economic return on assets and labour, among others.
Phase 3: Success
In this phase, business owners are faced with the decision of whether to exploit the company’s achievements and expand, or keep the company stable and profitable; thus providing a base for alternative business activities. The main issue is whether to use the company as a platform for growth. Here, the company has attained true economic health, has ample size and product-market penetration to ensure economic success, and earns regular or above-average profit.
Phase 4: Take-off
In this phase, the key problems are how to grow rapidly and to finance that growth. The most important factor to consider is if the owner can delegate responsibilities to others, to improve the managerial effectiveness of a fast growing and increasingly complex enterprise.
Phase 5: Resource Maturity
The main apprehensions of a company at this stage are, first, to consolidate and manage the financial gains brought on by rapid growth. Secondly, to retain the benefits of a small size, which includes flexibility of response. To eliminate the inefficiencies that growth can produce, the company must quickly expand the management force and put structure in the organization using tools such as budgets, strategic planning, and standard cost systems and implementing these structures without stifling its entrepreneurial virtues.
Image Source: Pixabay
234Finance.com is an online platform that promotes African entrepreneurship. We achieve this by bridging the gap between investors and early stage startups in Africa’s emerging market.
234Finance.com is strategic for promoting entrepreneurship through the power and effective use of information.