The Five Stages of Growth for Small Businesses

woman holding “open” sign in restaurant [Courtesy]

Start and grow a small business Not hanging out in the park. Data shows that 20% of small businesses do not survive their first year. By the end of the second year, 30% of small businesses will fail. By the fifth year, half of all small businesses will be out of business.

These statistics are not meant to scare you. However, they can provide you with a reality check and motivate you to work harder to ensure your business is one of the success stories. Understanding the five stages of small business growth can help you in this regard. Let’s take a look at the stages and what you can do to maximize your business potential.


The first stage is to take your business from mere idea to reality. You start by identifying unmet needs in the market and introducing a service or product to close the gap. At this stage, there are many factors to consider, which can make the process very confusing and challenging.

To make everything easier, you need to have a clear plan that acts as a roadmap of sorts. Write a business plan that helps you understand the market and your place in it. A well-written business plan, if followed, can prepare you for the inevitable twists and turns that come with starting and growing a small business.

If entrepreneurs don’t plan properly for this stage, their businesses are likely to follow suit. Once the start-up capital runs out, such businesses close down. If you are lucky, you can sell the business for the asset value.

The secret to success: Develop a detailed business plan that helps you gain a deeper understanding of the market and your place in it. Analyze your competitors, risks and opportunities. Remember, every business is unique, and your business plan must evolve over time as you review, achieve milestones, set new goals, and revise your marketing strategy.


At this stage, your business idea has been proven to work. You have enough customers who are very happy with the service or product you sell. You may have some employees supervised by a manager. However, the business is still largely synonymous with its owners.

The main challenge shifts from mere existence to ensuring survival through long-term profitability. In the short term, you worry about generating enough cash to break even. In the long run, you worry about generating enough cash flow to sustain the business and fund growth. Businesses that reach the survival stage often fail because they cannot maintain cash flow.

Many small businesses, such as mom-and-pop shops, get stuck in this stage throughout their existence, earning marginal returns on the time and capital invested. Eventually, these businesses fail when the owners give up or retire. At this stage, some businesses are already financially viable enough to sell, usually at a slight loss.

The secret to success: To get through the survival phase, you need to be flexible. It can be reassessed, learned and adjusted at any time. Find out the changes needed to create a healthier, more successful business. For example, you may have to hire skilled business managers, bring in more staff, and outsource certain tasks. To maintain positive momentum at this stage, you also need capital to seize opportunities. Manage your cash flow and get more money to help you run your business.


Once your business starts generating substantial profits consistently, you face a major decision: what to do with the profits. Most small business owners use the profits generated to fund other things – such as personal expenses or growing other businesses. Others reinvest profits into the business to drive growth.

Some businesses can stay at this stage indefinitely – which is not a bad thing. However, businesses that are unable to maintain profitability will soon return to the survival stage. To move beyond the success stage, you need to be a business leader, not a business owner. It requires highly skilled financial management, organizational development and empowerment to a growing team to take your small business to the next stage of growth.

Secret to success: Focus on finding resources, both financial and employee resources, to help maintain and improve the profitability of your business.

take off

At this stage, your business is experiencing exponential growth. Your main challenge is to manage and sustain this growth. Your business has become more fragmented, which brings challenges that you may not have faced in previous stages. Businesses in the take-off stage are often referred to as “creeping rocket ships.” The business is growing so rapidly that it could eventually collapse if not managed properly.

Secret to Success: As a business owner, realize that as your business scales, you can’t be involved in everything. Delegate to talented executives and focus on developing growth strategies to drive sustainable expansion.


If your business survives the “creeping rocket ship” stage, it will enter its final stage: maturity. No matter the industry, rapid expansion will not last forever. Every business experiences slower growth as it matures. Businesses that reach this stage have effective, well-established systems and sufficient resources to maintain long-term profitability.

The main challenge shifts from growth to stability. Even so, you still need to innovate and adapt to market changes.

The secret to success: Build a culture of innovation in your business. Make sure to hire highly innovative employees and encourage them to share and implement their ideas. To stay ahead, you must avoid complacency.

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