What Stage Is Your Business In? A Framework to Grow Strategically

The 5 stages of small-business growth, and how to identify which one you are in.

As an entrepreneur, things can feel wild and unpredictable. Many times it feels like throwing spaghetti on a wall. After many experiments and iterations, many founders get frustrated that things aren’t simpler yet, or that they haven’t fully cracked the marketing or the sales. If you’ve validated your offer, and you’re in the years-long effort towards finding preditable sales, you’re not alone.

This is a normal stage of being starting and growing a business. But this is where things can get tricky. Many business owners, struggling with the marketing and sales aspects of business, will shift their attention to other areas of business. This is where a small business owner might make a consequential error. If you’re trying to operationalize and streamline before you’ve nailed predictable sales, you’re jumping between stages of business.

“It’s tempting to think that if you have the right systems or teams, you’ll feel less overwhelmed. But if you’re making business moves in the wrong order, chances are you’ll sink yourself and your business.”

It’s tempting to think that if you focus on standardizing and operations, you’ll feel less overwhelmed. But if you’re making these moves in the wrong order, chances are you’ll sink yourself and your business. It’s important not to interpret the frustration of marketing and sales as a sign to do something else entirely. Instead, step back, identify which of the five stages of business you’re in, and focus your work on what’s necessary in that specific stage.

Knowing what to work on in your business, and doing it in the right order, is the brilliant art of sequencing. This idea of sequence over strategy comes from business strategist and multi-million dollar startup operator Michelle Warner. She is a growth strategist who helps small business owners dial in their business model, increase profitability, and create businesses that last. Every year, I invite her to guest lecture in Wise Women’s Council, an incubator for women entrepreneurs and leaders. Over the many years I’ve watched Michelle teach, I’ve seen just how useful these models are.

In this article, I’m going to give an overview of the five stages of small-business growth, ideas that come from original research published by Harvard Business School in 1983. In addition, I’ll share the key lessons and insights I’ve learned about how to take this model and apply it to small businesses today.

The Five Stages of Small-Business Growth

How to work smarter if you're a business owner.

This model was originally published as The Five Stages of Small-Business Growth in Harvard Business School, May 1983. It is based on research by Neil C. Churchill and Virginia L. Lewis. The name credit above is to the original authors.

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Here’s the problem:

Most business owners try to operate their businesses as though they are in every stage at the same time, and try to do too much all at once. Or they will do stages out of order, spending precious resources on work that is not productive or useful (yet). This leads to burnout, waste, or failure.

Here’s what to do:

Business owners should identify what stage of business they are in, and focus the majority of their resources on the stage they are currently in. Instead of doing everything at once, filter all strategic advice and tools through the lens of these five stages. The key strategic insight? It’s okay—essential, even—to minimize work that comes in later stages.

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☀︎ STAGE 1 — LAUNCH & VALIDATION

You’re just starting a business with an idea, concept, or early prototype. Your fight is for existence. You need to launch quickly and validate that your business product/service is something that people will actually buy.

• Launch quickly.

• Validate demand for product/service.

• Prove people will pay for it.

• Do this as fast as possible.

• Do not get bogged down by extensive plans, marketing strategies, hiring, research, etc.

VALIDATION → VIABILITY. The owner is the direct manager of everyone on the team. The team is small or may not exist. The owner and the business are synonymous with each other. There are minimal formal systems. Your primary goals are to establish that you can get enough customers and deliver products (or services) sufficiently so that you can become a viable business.

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☀︎ STAGE 2 — SURVIVAL & CASH FLOW

You've got a viable business if people buy! As a workable entity, your next job is to stay in business and stay on top of revenues and expenses. The business is experimenting and iterating on customer acquisition and growth.

• Now you need to stay in business.

• Focus on cash, marketing, sales.

• Experiment until you find what works.

• This can be messy, iterative, and experimental.

• Goal is to learn reliable ways to reach paying customers, repeatedly, and deliver sufficiently on your services or products.

MESSY → PREDICTABLE. The organization is still simple, the owner directly involved. There may be some employees. You are NOT focused yet on systems, planning, forecasting, or SOPs. This stage moves from scrappier to more predictable. Your primary goal is to generate enough cash flow to stay in business, while growing to a size that builds a decent economic return on your assets and labor.

Many businesses stay in Stage 2 for years, and that's normal. It can take a long time to find the right marketing mix and asset mix to reach predictable levels of profitability. Some businesses do not progress through Stage 2, getting stuck either earning marginal returns, or the delivery process is too costly or cumbersome:

“The mom-and-pop stores are in this category, as are manufacturing businesses that cannot get their product or process sold as planned. Some of these marginal businesses have developed enough economic viability to ultimately be sold, usually at a slight loss. Or they may fail completely and drop from sight.” — Churchill and Lewis, HBR, 1983

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☀︎ STAGE 3 — SALES, SYSTEMS, SUCCESS

You're here when sales are predictable and reliable, when you can estimate upcoming sales and revenue within ~10%, and the business is sufficiently profitable. At this point, your business can:

• Begin to systematize + standardize processes

• Invest in strategic planning + operations

• Hire managers, professional services, more team members

• Refine + eliminate inefficiencies

PREDICTABLE SALES → SYSTEMATIZATION → PROFITABILITY. Businesses are refining their sales, systems, and processes towards expanded profits. Profits are reliable and consistent. Many businesses remain here for a long time or indefinitely, as Stage 3 is a successful stage for businesses. Not all businesses move to Stage 4 or 5.

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↕ → AN INFLECTION POINT at STAGE 3.

There is a pivot point that happens for business owners at this stage. There are two different paths: deciding between stability or further growth.

→ STABILITY: Once businesses have reached sufficient size and economic health, many owners opt to stay here indefinitely. They reap the rewards of continued success, and can hire out management, operations, or directors to allow the owner to step away from some of the business. The challenges here are complacency and adaptability: not all teams are well-equipped to deal with environmental, market, or economic changes. Poor management, shifting costs, or new competitors can cause a business to fold or drop back down to Stage 2: Survival.

→ GROWTH: Alternatively, some business owners reach success in Stage 3 and want to continue to expand. They decide to use their business as a leverage point for growth, by re-investing profits into a growth and expansion. This is riskier, as you are re-investing profits, but has much higher potential rewards.

Many businesses stay in Stage 3 very successfully. Not all businesses move to Stage 4 or 5 if it’s not in line with the business trajectory or aims.

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KEY INSIGHTS

From Stage 1, Stage 2, and Stage 3:

In general, most small business owners will operate in the first three stages, and very few will progress further to stages four or five. At this point, there are many key insights that apply to small business owners:

STAGE 1: Validate quickly! This should be quick. Do not get stuck in this stage. Too many entrepreneurs will spend far too much sweating over a product, service, or offering and never put it in front of people. You should put your offers and ideas in front of people quickly to test and validate that there are potential buyers.

STAGE 2: Make money! Early sales are almost always messy and experimental. It’s wise to keep your team small and lean, and your growth through this stage is all about finding pathways to consistent, reliable, predictable customers and sales. This can take years. If you’re in the messy stage of cash flow, marketing, and fulfillment, you’re right there alongside many, many other business owners.

❌ IF YOU ARE IN STAGE 2: Do not focus your energy or resources on building systems, processes, SOPs, large teams, or extensive plans before you have moved through these first two stages. If you are still iterating on marketing and sales, then standardizing this (only to have it change) is a waste of time. Keep your systems lean, your processes lean, and try to focus the majority of your effort on building towards reliable sales. Once you can predict your sales flows with confidence and accuracy, then you can begin to operationalize.

STAGE 3: Reliable sales and profit = now it’s time to get more efficient! When you reach the point where sales and marketing channels are reliable and predictable, and you are sufficiently profitable, then you can move to operationalize, standardize, and streamline.

OVERALL If your business is still in an early stage, and it feels messy, that's a totally normal part of business. Finding your marketing mix and reliable sales can take years. The more you focus on the stage you're in, the better you'll grow.

Next, let’s look briefly at Stage Four and Stage Five.

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☀︎ STAGE 4 — TAKE-OFF & SCALING

In this stage, the business is now looking to rapidly expand, grow, and scale. You are taking the success from Stage 3 and trying to leverage it to expansion, which will require adequate financing and sufficient growth to maintain the expansion. This will often require more refined systems, operational and strategic planning, and effective management. The key challenges in this stage:

• How to grow rapidly (and how to finance that growth)

• Managing a fast-growing, increasingly complex organization

• Managing cash flow

• Higher levels of risk

• Owner's ego, skill at scaling, blindspots

INVESTMENT → EXPANSION. This is the chance for a business to become a big business. But it requires a high level of skill in management, forecasting, planning, hiring, delegating, and managing complex business environments. Limitations at this stage, the authors write, are usually because of the owner. The owner might not be skilled at managing a growing company, they may struggle to delegate, or they run into problems with cash flow.

"If the owner rises to the challenges of a growing company, both financially and managerially, it can become a big business. If not, it can usually be sold—at a profit—provided the owner recognizes his or her limitations soon enough.”

“Too often, those who bring the business to the Success Stage are unsuccessful in Stage IV, either because they try to grow too fast and run out of cash ... or they are unable to delegate effectively enough to make the company work." — Churchill and Lewis, HBR, 1983

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☀︎ STAGE 5 — MATURITY

The company has reached a formidable size, with advantages in size, financial resources, and market reach. At this stage, you’re a very large business focused on consolidating and controlling your financial gains, expanding the management team, and eliminating the inefficiencies that happen due to rapid growth.

Your goals are to:

• Consolidate and control financial gains

• Retain advantages of flexibility, size, responsiveness

• Expand management to top-tier operators; Professionalize the company w/ highly experienced people; Staff adequately.

• Eliminate inefficiencies, decentralize, finesse operational planning

• Systems are extensive and well-developed

“The corporation must expand the management force fast enough to eliminate the inefficiencies that growth can produce and professionalize the company by use of such tools as budgets, strategic planning, management by objectives, and standard cost systems—and do this without stifling its entrepreneurial qualities.” — Churchill and Lewis, HBR, 1983

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A FEW FINAL NOTES:

Different parts of your business may be in different stages. Many businesses will operate with different products and divisions, and each product might be in its own stages. This is a useful way to think of the model. You might have an offer that is solidly in stage three, and you’re now exploring new offers to add to your product suite. Those new offers are right back in stage one, “validation” and they might spend a fair amount of time in the second stage.

Not all businesses are designed (or intended) for Stage 4 or Stage 5. For the completionists and perfectionists out there, please truly ignore the last two stages if they are not a match for the business that YOU are building. The majority of businesses will land in Stage 3 as a successful end stage.

If you are looking for support in starting, growing, and scaling your business, I wholeheartedly recommend Michelle Warner as a business strategist and thought partner. Check out Michelle Warner’s podcast, Sequence Over Strategy, where she breaks all of this down and does custom Q/A with different business owners to talk them through the process. Here are a few episodes to start with:

• Episode #8: The Five Stages of Small Business Growth

• Episode #10: Aligning Marketing and Growth

• Episode #11: Aligning Product and Customer Growth

• Episode #13: How to Master Your Marketing Using Sequence First

• Episode #23: The Three Growth Dials

If you are looking for a community of entrepreneurs to grow with, I run Founders With Kids, an online community for parents who are also small business owners and entrepreneurs. It’s a supportive community of entrepreneur parents who want to growsuccessful, sustainable businesses, with the difficulty level on “hard” while we also raise kids and manage the mayhem of family life at the same time.

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— Sarah K Peck
Leadership ☀︎ Business ☀︎ Parenting ☀︎ Mindset ☀︎ Humor

Startup Parent (Podcast)
Founders With Kids (Community)
Wise Women’s Council (Leadership Incubator)
You can also find me on LinkedIn, Substack Notes, and Threads.