This Slideshare presentation is a partial preview of the full business document. To view and download the full document, please go here: http://flevy.com/browse/business-document/five-stages-of-business-growth-249 This document introduces a framework for entrepreneurs to use when building and navigating their business from a nascent, startup state to an enterprise with a global footprint. This framework is based on the fact that all businesses experience common problems that arise at similar stages in their development. Familiarity with the Five Stages of Business Growth allows the business owner and business consultant to develop invaluable insights, including: *Knowing what to focus on at what stage *Appropriate management style at each stage *Anticipation of key challenges at various points *Critical success factors through the company?s progression *Involvement of owner at various stages *Evaluation of impact from governmental regulations and policies This presentation also includes case examples.

1. Business Framework
Five Stages of Business Growth
This framework around small business
growth is based on the fact that all
businesses experience common problems
that arise at similar stages in their development. Familiarity with this
concept allows the business owner to attain invaluable insights.
Includes case examples.
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2. 3
Contents
• Executive Summary
• Stages of Small Business Growth
- Existence
- Survival
- Success
- Take Off
- Resource Maturity
• Critical Success Factors
- Cash
- Owner’s Abilities
- Strategic Planning
- Key Management Factors
• Additional Considerations
• Case Examples

3. 5
Each stage of growth is characterized by a different impetus to growth
and threatened by a different crisis
Five Stages of Small Business Growth – Overview
As a company evolves through each stage, it is critical for the owner to know when to
give up control and delegate responsibilities.
STAGE I
Existence
STAGE II
Survival
STAGE III
Success
STAGE IV
Take Off
STAGE V
Resource Maturity
 Growth achieved
through creativity
 Open to crisis of
leadership
 Growth achieved
through direction
 Open to crisis of
autonomy
 Growth achieved
through delegation
 Open to crisis of
control
 Growth achieved
through coordination
 Open to crisis of
bureaucracy
 Growth achieved
through
collaboration
 Open to various
forms of crises
Age of Company
YOUNG MATURE
Size and
Complexity
SMALL
LARGE
Source: Churchill & Lewis, The Five Stages of Small Business Growth, Harvard Business Review

4. 7
Contents
• Executive Summary
• Stages of Small Business Growth
- Existence
- Survival
- Success
- Take Off
- Resource Maturity
• Critical Success Factors
- Cash
- Owner’s Abilities
- Strategic Planning
- Key Management Factors
• Additional Considerations
• Case Examples

5. 9
The focus of businesses in Stage II, Survival, is to optimize cash flow
Stage II – Survival STAGE I
Existence
STAGE II
Survival
STAGE III
Success
STAGE IV
Take Off
STAGE V
Resource
Maturity
OVERVIEW
• Reaching this stage demonstrates that the business is a workable business entity
• Its value proposition and business model have been tested—it has customers and
satisfies them sufficiently with its products or services to retain them
• The key problem will shift from mere existence to the relationship between revenues
and expenses—i.e. cash flow
• Some businesses can stuck in this stage—they earn marginal returns on invested
time and capital; eventually, they go out of business when the owner gives up, or
retires, or sells it (usually at a slight loss)
KEY QUESTIONS & CHALLENGES
• In the short run, can we generate enough cash to break even and to cover the repair
or replacement of our capital assets as needed?
• Minimally, can we generate enough cash flow to stay in business and to finance
growth to a size that is sufficiently large, given our industry and market niche, to an
economic return on our assets and labor?
EXAMPLES
• ―mom and pop‖ stores (example of businesses stuck in this stage)
MANAGEMENT
STYLE
Supervised supervision—
limited number of employees
supervised by a sales
manager or general foreman
STRATEGIC
FOCUS
Survival—optimize cash flow
ORGANIZATIONAL
STATE
STATE OF
SYSTEMS &
PROCESSES
Systems development is
minimal—formal planning
consists of cash forecasting,
at best
BUSINESS &
OWNER
Owner is still synonymous
with the business
Owner Business

6. 11
The fourth stage of Growth, Take Off, is where a small business grows
into a medium or enterprise-size company
Stage IV – Take Off STAGE I
Existence
STAGE II
Survival
STAGE III
Success
STAGE IV
Take Off
STAGE V
Resource
Maturity
OVERVIEW
• The focus in this stage is to grow rapidly and finance this rapid growth
• Growth is usually a combination of organic and inorganic (i.e. acquisitions), which may
require significant financing
• This is pivotal junction in the company’s life
• If the owner is successful, the company can grow into a big business
• If not, it is usually sold at a profit, assuming the owner recognizes his or her
limitations soon enough
• The management team often changes from the previous stage—it takes a different
mindset and skill set to be successful in this stage than the previous
• In fact, usually, the original founder/entrepreneur is replaced (voluntarily or
involuntarily) by the company’s investors or creditors with someone may experienced
in running a larger scale enterprise
KEY QUESTIONS & CHALLENGES
• Can the owner delegate responsibility to others to improve the managerial
effectiveness of a fast growing and increasingly complex enterprise?
• Will there be enough cash to satisfy the great demand growth brings (which often
requires a willingness of the owner to tolerate a high debt-to-equity ratio)
EXAMPLES
• (2010 examples) Facebook, Zynga
MANAGEMENT
STYLE`
Divisional—organization is
de-centralized, usually in
sales or production
STRATEGIC
FOCUS
Growth
ORGANIZATIONAL
STATE
STATE OF
SYSTEMS &
PROCESSES
Systems are becoming more
refined and extensive, both
operational and strategic
planning are being done and
involve specific managers
BUSINESS &
OWNER
Owner Business

7. 13
Contents
• Executive Summary
• Stages of Small Business Growth
- Existence
- Survival
- Success
- Take Off
- Resource Maturity
• Critical Success Factors
- Cash
- Owner’s Abilities
- Strategic Planning
- Key Management Factors
• Additional Considerations
• Case Examples

8. 15
As the owner grows its business, there is a clear trade-off in critical
between the owner’s ability to execute versus his ability to delegate
Critical Success Factors – Owner’s Abilities
The owner needs to recognize the need to delegate and relinquish responsibilities to
ensure the company’s continued growth.
STAGE I
Existence
STAGE II
Survival
STAGE III
Success
STAGE IV
Take Off
STAGE V
Resource Maturity
Size and
Complexity
RELEVANT
OR NATURAL
BY-PRODUCT
CRITICAL
TO SUCCESS
Owner’s ability to execute
Owner’s ability to delegate
Source: Churchill & Lewis, The Five Stages of Small Business Growth, Harvard Business Review

9. 17
Key
Management
Factors
Additionally, we have identified 8 key management factors—4 company
factors and 4 owner factors
Critical Success Factors – Key Management Factors
Financial Resources—including and
borrowing power
Personnel Resources—relating to
numbers, depth, and quality of people,
particularly at the management and staff
levels
Systems Resources—in terms of the
degree of sophistication of both information,
planning, and control systems
Business Resources—including customer
relations, market share, supplier relations,
manufacturing and distribution processes,
technology, and reputation
Owner’s Goals—for himself and for the
business
Owner’s Operational Abilities—in doing
important jobs, such as marketing,
innovation, producing, and managing
distribution
Owner’s Managerial Ability—including
willingness to delegate responsibility and
to manage the activities of others
Owner’s Strategic Abilities—for looking
beyond the present and matching the
strengths and weaknesses of the
company with his goals
COMPANY FACTORS OWNER FACTORS
1
2
3
4
5
6
7
8

10. 19
Utilizing this framework, the business owner should adjust resources at
each stage to avoid and minimize potential problems
Preparing for and Avoiding Future Problems
At each stage of growth, different skill sets and resources are emphasized. This is why some
experienced people from large companies fail to make good as entrepreneurs or managers of
small companies—they may be good at delegating, but not good at doing.
Therefore, it is critical for an owner to recognize different sets of needs at each stage of growth.
The owner should carefully evaluate the following questions to best prepare and avoid future
problems as the organization grows:
 Do I have the ability and diversity of people needed to manage a growing company?
 Do I have now, or will I have shortly, the systems in place to handle the needs of a
larger, more diversified company?
 Do I have the inclination and ability to delegate decision making to my managers?
 Do I have enough cash and borrowing power along with the inclination to risk
everything to pursue rapid, aggressive growth?

11. 21
Contents
• Executive Summary
• Stages of Small Business Growth
- Existence
- Survival
- Success
- Take Off
- Resource Maturity
• Critical Success Factors
- Cash
- Owner’s Abilities
- Strategic Planning
- Key Management Factors
• Additional Considerations
• Case Examples

12. 23
Case Examples – Exceptions to the Framework?
The following 2 slides illustrate case examples of small business categories that, at first, may
appear to be exceptions to this framework—however, you will find that The Five Stages of
Small Business Growth apply to these businesses as well
Small Business Categories:
• Franchises
• Web Startups

13. 25
Web start-ups rely tremendously on Venture Capital funding to propel
through the high growth Take Off stage
Case Example – Web Start-ups
To avoid bankruptcy, companies need to maintain their entrepreneurial culture by
continuing to innovate and staying relevant.
START-UPS
STAGE I
Existence
STAGE II
Survival
STAGE III
Success
STAGE IV
Take Off
STAGE V
Resource Maturity
 Develop initial site
and launch beta
release
 Obtain initial
customers through
grass roots
marketing
 Testing market idea
with rapid iterative
modifications
 With a slightly
refined product and
existing customers,
seek out Series A
funding
 Funding from Series
A to hire first
employees to
continue product
development
 At this point, many
web startups have
no plans to
monetize (which is a
big difference from
other small
businesses)
 Service or product
has reached a
defining milestone –
e.g. reach critical
mass, broke sales
threshold
 Running low on
capital, need to look
for Series B
continue the
momentum in
growth thus far or
risk going bankrupt
 With Series B, fund
rapid growth –
including massive
marketing efforts,
acquisitions of
younger web start-
ups
 Many web start-ups
at this point are also
looking to be
acquired
 Web startup is now
a successful
 Considers IPO exit
strategy

14. 1
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