Recognizing the growth patterns of small businesses and the peculiar set of challenges presented by every stage of development are indispensable for every budding entrepreneur who often seems to get lost in the process of penetrating the market. Businesses, especially small-scale ones, are in constant growth. They start with just a few employees and a very limited range of objectives, but they all have the potential to embark on major expansion with properly crafted and well-executed action plans. While all small businesses are unique in terms of organizational structure, strategy, and managerial style, they have one thing in common: they experience or follow the same set of growth patterns.
A business does not simply come into existence and become profitable overnight. Businesses have to go through a sequence of developmental steps and overcome all the challenges that every step creates. Believe it or not, the same pattern applies to every company including startup with just a handful of employees to the multi-million dollar software developers.
The similarity of the growth pattern makes it easier for startup founders to understand the opportunity and obstacles ahead of time, and create an effective plan in accordance with market conditions, so they can survive and thrive in the long run.
Such an understanding is the foundation for business owners to devise a creative plan that ensures the efficient use of available resources.
Growth Pattern
Various studies have attempted to come up with a definitive model to examine the growth of a small business, but the most commonly used pattern is as follows.
Planning
At this very early stage, the business to be established must answer these questions:
- Does the idea (of goods or services) fill a need in the market?
- Will the company make a profit?
- How will people react to the product idea?
- What is the right business model for this business?
The “initial” plan is just that: initial. You cannot stick to that same plan over the years and expect steady growth. The key to a successful startup is adaptability, meaning the business plan must change in accordance with current market conditions and consumers’ demands. Every single part of the action plan must be under constant review and ready for quick adjustment. Many times the plan also includes a requirement for outside investment.
Establishment
The next growth stage is Establishment, in which the business is starting to take shape, and therefore a change of plan is most likely necessary. A small business undergoes a massive difference at this stage because the initial plan can no longer sustain growth. Some of the most common challenges include:
- Seeking outside investment because the actual budget exceeds the allocated amount
- Hiring more employees to support day-to-day operation, which also adds more expense
- Establishing market presence and customer base
- Ensuring a balance between cash reserves, expenditures, and sales
- Determining more appropriate management styles due to market demands
In the establishment stage, the most important thing to achieve is sustainable operating procedures with risk management.
Early Growth
A significant milestone in building a business is the ability to gain steady cash flow from the customer base. It is a sign that the production and delivery of goods and services are well-managed. At this point, small businesses have overcome all the difficulties endured during the earlier stages of growth and are in the process of generating revenue. As profit starts to come through the door; however, competition is catching up and bringing some new challenges:
- Fulfilling the demands of an increasing number of customers
- Streamlining company operation to minimize operational cost
- Keeping up with competitors
- Increasing the volume of cash reserves
During the Early Growth stage, the deciding factor is whether the company can recognize the key profit driver and optimize its impact on the business itself.
Profitability
With more reliable distribution channels and effective marketing strategy in place, small business has earned its place in the market despite fierce competition and makes money. Being profitable is a sign that the business is moving toward the expansion process. Naturally, the company is seeking to:
- Stay ahead of competitors
- Acquire competitors whenever possible
- Expand the business sectors
- Increase the volume of production
Many small business owners think that Profitability is the final stage, and they are not entirely wrong. After all, the purpose of building a business is to earn a profit. However, complacency at this stage often leads to a decline, mostly because the competitors can afford to stay creative. There is always room for improvement, for example, employee engagement, customer satisfaction, brand image, and collaborations with partners.
Revitalization
Also often referred to as the maturity stage, Revitalization is the beginning of a process where the business must think about new and improved products or services or an effective exit strategy. As you know, the market is always changing; your goods and services need to stay relevant if you want to stay in business. Go back to the drawing board and craft a new plan to support and encourage innovations. But this time it will be easier because you have reliable financial resources to get the job done.
