Growing a startup into a mega-company makes for an epic entrepreneurial success story

Growing a startup into a mega-company makes for an epic entrepreneurial success story

Just in the way a person passes from childhood through to adulthood, the growth of a business can be categorized into 5 stages.

Humans and businesses don’t develop in the same way though.

For humans growth is a well defined continuous process that we can estimate by using pointers such as age and physical appearance.

On the other hand, not all businesses make it to the fifth stage of growth despite being advanced in age.

In fact, many “mom and pop” businesses remain in the first stage for as long as they exist and generally cease existing when the founders decide to close shop. The point here is that businesses go through successive stages of growth at their own pace.

Some businesses never grow past Stage 1 - Existence...

Some businesses never grow past Stage 1 – Existence…

...others, however, grow all the way to Stage 5 - Maturity

…others, however, grow all the way to Stage 5 – Maturity

I digress.

As the owner of a new small business you perhaps nurse ambitions of following in the path of iconic brands like McDonald’s, Facebook and Sony.

For these aspirations to materialize you need to find out what each stage of growth involves and what challenges lurk. You also need to find out what to do to ensure you’ll make it through each stage.

Stage 1: Existence

At inception, the main concern for you as the business owner is to find customers to whom you can sell your product/service. The big question on your mind on every waking day is whether you’ll ever get enough customers, and if so, whether they’ll buy enough to make yours a viable business.

You are also very concerned about your financial resources and capacity. Time and again you reflect on whether the cash you have will be enough to cover all of your startup’s requirements, and if not, where you are going to source for more.

At Stage 1 a lot of your effort goes into finding customers and raising cash to sustain operations.

At Stage 1 a lot of your effort goes into finding customers and raising cash to sustain operations.

Doubts begin to ease when you realize that you’re no longer testing your idea but are actually beginning to make headway in your target market. Business has started to trickle in and you are now able to scale; get ready for stage 2.

Lessons to learn:

Effective research and planning are imperative here. You need to be fully aware of who your target customers are and what niche of the market you have to focus on.

Armed with these insights you should come up with a purposeful action plan for initial market penetration.

You are testing systems here to find out what can work and what won’t. Many responses will tend to be negative but if you tie the sparse positives together you will see the makings of the path you should follow.

Stage 2: Survival

At this point it is really evident that the basics of your business idea are workable. Your business is on its feet and concern has now shifted to monitoring your revenues and expenses. Now those terms you have been reading about like “cash flow” and “break even” are beginning to make sense.

You begin to look at the equipment or assets you used to start the business with the aim of repairing or replacing them. After all, you now have some cash.

At Stage 2 the business is growing and cash flow is steady. It is now possible to re-invest in the business so as to improve productivity.

At Stage 2 the business is growing and cash flow is steady. It is now possible to re-invest in the business so as to improve productivity.

A little later you realize that by investing in some more equipment or hiring some labor your productivity and income can be increased.

Lessons to learn:

After making it through the typically harrowing existence phase and clawing your way to survival, you do have a reason to smile, albeit cautiously.

You have at least proved that there is market demand for your product/service.

Nevertheless, this demand is at first quite meager; you are just making enough to survive.

A proactive entrepreneur won’t be comfortable with mere survival though.

Now more than ever you need to refine your market research and penetration strategy.

Consider feasible action plans that will help you to make much more than ‘survival money’. Approach more potential clients, let them know what you are offering, and let them know what value they’ll get by consuming your product/service.

The sure way to fail at this stage is deciding to be content with the little business your initial clients bring.

 

Stage 3: Success

At this stage your business is vibrant and profitable.

Demand for your product/service is steadily increasing by the day. You are no longer as committed to finding new clients because your customer base is suitably sufficient. In fact, a considerable portion of new business is coming your way courtesy of referrals from current clients.

At Stage 3 business is very vibrant. Demand for your product is high and customers are plentiful.

At Stage 3 business is very vibrant. Demand for your product is high and customers are plentiful.

In the case of an online business, your website has become pretty familiar in target market circles. Your marketing strategies are really paying off.

Thinking about future growth, two options come to mind.

Scenario 1:

You consider using the business as the platform of your growth. This will involve pooling resources for purposes of funding the next stage of growth, whilst ensuring that the business remains profitable.

Growth will in this case be attained through the strategies of market development, market penetration and/or product development.

Scenario 2: 

You consider using your resources to fund the growth of a new business, whilst using the current business as a support. This is the business diversification strategy.

This means that you’ll have to appoint managers to run operations in your place, trusting that they’ll be competent enough to achieve increasing growth and profitability.

Lessons to learn:

This is the stage where things have finally started to sort themselves out.

Unlike in the two previous stages, relaxation time actually means that you have ‘left work at the office’. Revenues are good and profits are healthy.

You nevertheless have a decision to make.

You can opt to be content with serving your current customer base without committing resources to more growth.

OR

You can opt to grow to the next level, again by researching, planning, and implementing a well informed course of action.

Stage 4: Take-off

The assumption here is that you have opted for Scenario 1 as has been outlined above.

You soon realize that success at this stage depends on adequate funding and quick growth.

Planning is being done on two fronts i.e. for operational and strategic purposes (current business and future expansion respectively).

The need for managers becomes very evident and you seek competent professionals who’ll be in charge of various departments. An organizational chart is also drawn up to clearly illustrate how duties have been delegated.

At Stage 4 it becomes imperative to hire a skilled management team and to delegate duties accordingly

At Stage 4 it becomes imperative to hire a skilled management team and to delegate duties accordingly

Since operational and strategic interests are being simultaneously implemented, the business is soon forced to contend with a high debt-equity ratio. You are also forced to adopt aggressive measures aimed at maintaining sufficient cash flow and controlling expenses.

Failure at take-off stage is normally attributed to three reasons:

  • Insufficient cash flow,
  • Trying to grow too fast, or,
  • Ineffective delegation of authority/responsibility to the managerial team.

Lessons to learn:

Success or failure at this stage depends on how well or poorly you plan and implement business operation systems, delegation of authority, and implementation of growth.

A below par execution of any of these three factors will not only compromise the other two but can ultimately lead to business collapse.

What a shame that would be having come so far.

Yet again you will need to research, plan and implement well informed concepts, systems and processes, and ensure that you continuously monitor and evaluate them.

More importantly, now is the time to look for and hire experts who are more knowledgeable in these three significant focus areas. Consult widely with mentors and business owners who have successfully progressed to the next level – it could make the difference between success and a crash and burn fate.

 

Stage 5: Maturity

At this stage your business is most likely being referred to as a company. The management structure is now decentralized and efficient organizational systems are running the show like a well-oiled machine.

Finances are also in good order.

It is now easier to proceed with further strategic and operational ambitions.

You and the business are now distinctly separated as regards operations and finances.

At Stage 5 the business is now a company, and a household name

At Stage 5 the business is now a company, and a household name

Further success is more or less assured provided that the business’ entrepreneurial traits and tendencies are sustained.

Henceforth, keen focus must be paid to continuous innovation and risk-taking, subject to effective market research.

Lessons to learn:

Your business is finally at the apex; now you are a big player.

Savor your success but don’t get carried away.

Now it’s all about running an organization that has a tried-and-tested capacity to adapt to constantly changing internal and external requirements.

Looking at various industry top-dogs, continuous improvement can only be achieved through sustained researching, planning, implementation, monitoring, evaluation and re-evaluation.

In conclusion:

We all know of several examples where people have started with mere ideas and successfully transformed them into mega corporations.

Such transformation can never be instantaneous – it takes shape in gradual stages.

Getting from one stage to the next requires increasingly greater input that’s markedly different in scope.

One thing remains constant though – the need for thorough researching, planning, implementation, monitoring, evaluation and re-evaluation.

At what stage is your business? How far have you risen from Stage 1 and how did you do it? If you are still at Stage 1, how do you intend to get to Stage 2?

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