5 Company Growth Stages and Their Challenges

Written by SmartBiz Team | Jul 21, 2021 4:00:00 AM

The small business lifecycle has 5 different stages from start-up through maturity and possibly an exit. As you establish and grow a business, each has unique pain points to be aware of. We explore each stage, its challenges, and issues you might face. Our actionable tips offer tools to help you navigate the lifecycle.

Development

Do you have a business idea and are ready to jump on it? This is the time to take a look at the big picture and determine if you’re ready to take the entrepreneurial plunge. Do you have what it takes? Your strategy at this point should be to get as much quality feedback as possible. In addition to family and friends, consider reaching out to business and financial professionals.

Challenges:

Raising funds . Just because you have a genius business idea and business model doesn’t mean you have the money to make your dreams a reality. You can ask family and friends for money, pitch your business to venture capitalists or angel investors, or pursue an SBA loan. That said, be careful with certain funding routes – crowdfunding remains risky despite its popularity.
Choosing a business structure . Your choice of business structure will affect your tax burden, internal affairs, and more. You can find the right business structure for your company by consulting an accountant or reading the SmartBiz Loans guide to business entity types.
Writing a business plan . A business plan is both your personal roadmap for launching your company and an important document that lenders will ask to see. To make writing your business plan easier, consult the SmartBiz Loans business plan guide.
Determining the profitability of your business idea . Just because you think your business idea is brilliant doesn’t mean consumers will too. To determine whether you’ll actually find enough consumers to turn a profit, create a financial forecast. If your forecast shows that your business is viable, identify what distinguishes you from your competition and share that information with your target audience through marketing.

Pro tip: Consider working with a Small Business Development Center (SBDC) – a comprehensive small business assistance network.

SBDCs are hosted by leading universities, colleges, state economic development agencies and private partners. There are nearly 1,000 local centers available to provide no-cost business consulting and low-cost training to new and existing businesses. Best of all, many of their services are free. Search by zip code to find your local SBDC here.

In addition to SBDCs, find local accountants, business consultants, and marketing experts to help you determine the financial feasibility of your company. With this professional help, you can move from development to the next part of the business life cycle: an actual launch.

Start-up

After lots of blood, sweat, and tears, it's time to start-up the business! During this stage, the business owners are getting everything off the ground like purchasing inventory and equipment, setting up bank accounts and accounting procedures, hiring and training employees, and establishing a customer base.

It’s a lot of work, sleepless nights, and financial uncertainty. Many entrepreneurs realize their dreams aren’t going to come to fruition and bow out during this stage.

Challenges:

Putting systems and processes in place . Even the most diligent business owners will experience things falling through the cracks without rigid systems in place. The thing is, figuring out what processes work best for you can be tough. One approach might be to implement what you liked about how your previous employers went about business. Another might be to see how your competitors go about their affairs.
Researching competitors . Looking at your competitors’ systems should be just the start. Which software programs do your competitors use? What kinds of people work for your competitors? Who are your competitors targeting? Answer these questions, then see how you can do something similar.
Market penetration . You’ll likely access, at most, five percent of your target market as your business matures from an idea into a startup. To increase your market penetration as your company grows, you should adjust your prices to gain more customers. You can also tweak your products to meet any unexpected customer needs.
Delegation . In the startup phase, it’s easy to want to do everything yourself, but going it alone can lead to burnout. That’s why delegation matters – hire employees who have the skills to handle certain tasks for you. If you’re worried you can’t afford employees, then apply for small business funding.

Pro tip:

Flexibility is key here. Customer feedback will be invaluable as you tweak your products and services. Be ready to adjust how your business operates and makes money. In particular, don’t neglect the benefits that can come from hiring employees and adjusting your products or services to meet consumers’ needs.

Remember that your business plan is a living document that should be adjusted as you move through the business lifecycle. If you don’t have an effective business plan, take a look at our post: How to Write a Business Plan for Your Small Business (Without Going to Business School).

Growth

During the growth stage, companies usually experience higher sales, better profit margins, and increased market visibility. It’s a time when businesses need more time and more money to keep up with growth. Owners know busy times and slow times and have a handle on cash flow. They also have a great idea of the issues that face their business and are very familiar with their marketplace and how to succeed within it.

Challenges:

Managing increasing customer base . Company growth means more new customers – in fact, it can mean more new customers than you can currently handle. To catch up with your customer influx, hire more employees or install additional software to automate your processes.
A/P and A/R management . In the early stages of your business, you may have handled all billing affairs yourself. As your company grows, you just won’t be able to do both that and all your other business tasks. Instead, you should hire an accountant or a third-party firm to handle all your accounts payable and receivable. This way, your cash flow remains intact and your vendors remain happy.
Hiring . As with the startup stage, the growth stage is a key time to hire new employees. However, unlike during the startup stage, the growth phase can occur so rapidly that the hiring process becomes a full-time job of its own. Address this concern by outsourcing your HR or hiring a recruiter.
Streamlining operations . In the growth stage, more company activities can mean more overlooked tasks. You should streamline your operations to address this concern. You can do so by outsourcing administrative work and bringing in third-party firms for secondary tasks that take valuable time.

Pro tip:

Keep your credit scores high if seeking outside funding. Having high scores means you are less of a risk to lenders. You’ll be able to get lower-cost funds with longer terms. If you have high scores, have been in business for 2 years or longer, and have cash flow to support monthly payments, consider an SBA loan.

Known as the “gold standard” in small business funding, proceeds from an SBA loan can help accelerate your business growth. Use funds for inventory, equipment, hiring, marketing, debt refinance, and more. If you’re not quite ready for an SBA loan, there are lots of other options like a bank term loan or AR line of credit.

Rapid growth can also mean having more to do even as your team’s size remains roughly the same. Business owners in the growth stage should thus speak with others in the industry to find the best third-party outsourcing firms for their needs. Your small business can gain tons of time back if you hire another company to handle the indirect business tasks – especially if that firm comes with a recommendation.

Expansion

Businesses owners who have reached this stage have survived the stressful and very busy time of establishing a business from scratch. Business owners are exploring additional distribution channels in order to capture a bigger market share. Business plans are still extremely important at this stage as they offer a roadmap for moving forward.

Challenges:

Increasing market competition . As your company expands, it will find itself neck and neck with ever more formidable, larger competitors. One way to separate yourself from these competitors is to do something they’re not, but this in itself poses another challenge:
Adding inventory and services . Adding services – particularly those uncommon among your competitors – and buying more inventory introduces financial, organizational, and structural challenges. You can address this key part of the expansion phase by adding more staff for your new services and more space for your inventory.
Exploring new marketing channels . Your target markets and audience may change as you expand, thus introducing some questions you never had to answer amidst your prior marketing efforts. To address this challenge, research your new markets and audience, then determine how your new products and services meet their needs. Once you figure this all out, your marketing will be appropriately targeted.

Pro tip:

If you need to hire during this stage, consider bringing on a specialist with targeted skills to step up your marketing efforts. For example, the ever-changing social media landscape can be tough to navigate. Bringing on a specialist can help elevate your brand reputation, increase your customer base, and ultimately help your bottom line. The same should hold true if you bring in a project manager with experience working in the expansion phase.

Review our article for tips on how to choose the right fit for your unique company: Small Business Marketing Tip: How to Hire a Social Media Strategist.

Maturity

Mature companies don't automatically grind to halt and embrace the status quo. Businesses in the maturity stage may still pursue growth strategies, although at a slower pace. If you're not happy with this stage of the lifecycle, you might need to revisit your business plan, back-up, and put successful expansion strategies back in place. Running a business, no matter what the structure, is complex.

At the maturity stage, you probably don’t need to funnel all of your energy into every facet of your business so delegation is key. For some entrepreneurs, an exit strategy is the path they want to follow after surviving the previous stages.

Challenges:

Expanding the business . After a while, most businesses can only expand so much, but even in the maturity stage, you might still want more from your business. To expand your business once it’s mature, determine which customer needs don’t yet pertain to your company at all, then consider launching entirely new departments for these needs.
Creating an exit strategy . If you’re in the small business game to make as much money as possible, then you might have hopes of eventually selling your business. The maturity phase is the perfect time to do so, but finding a buyer can take some time. However, the introduction of online business buying and selling markets has somewhat solved this problem.
Increasing market competition . Should you choose to back up and reenter the expansion phase anew, you might see a different, larger set of competitors than you once knew. This increased market competition can present obstacles to getting your business out there – after all, your company might not look too new or exciting anymore. Apply the strategies you tried during the expansion phase to counter this concern.

Pro tip:

Step back and take a good look at your entrepreneurial journey. Do you have the energy and resources to go for it again? It’s a good idea to consult with a small business professional and explore your options whether that means expansion, selling the business, or shutting it down. Be aware of the personal and financial impact of your decision.

Above all, take your time making decisions in the maturity phase. Unless your company is rapidly losing revenue, you don’t need to rush your choices. Spend as much time as you need figuring out whether (and how) to expand, sell, or shut down. As you do, think about what each choice might mean for you or your employees. As long as you’ve spent ample time researching and reflecting, you’re making the right decision.

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