five stages of small business growth
DESCRIPTION
This framework around small business growth is based on the fact that all businesses experience common problems that arise at similar stages in their development. Familiarity with this small business strategy allows the business owner to attain invaluable insights. Includes case examples. This is a partial preview of the document. View and download the full PowerPoint here: http://learnppt.com/powerpoint/52_Five-Stages-of-Small-Business-Growth.phpTRANSCRIPT
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PowerPoint Diagram Pack
Five Stages of Small Business Growth
This framework around small business growth is based on the fact that all businesses experience common problems that arise at similar stages in their development. Familiarity with this concept allows the business owner to attain invaluable insights. Includes case examples.
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Contents
• Executive Summary 4
• Stages of Small Business Growth 8
- Existence
- Survival
- Success
- Take Off
- Resource Maturity
• Critical Success Factors14
- Cash
- Owner’s Abilities
- Strategic Planning
- Key Management Factors
• Additional Considerations19
• Case Examples22
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Each stage of growth is characterized by a different impetus to growth and threatened by a different crisisFive Stages of Small Business Growth – Overview
As a company evolves through each stage, it is critical for the owner to know when to give up control and delegate responsibilities.
STAGE I
Existence
STAGE II
Survival
STAGE III
Success
STAGE IV
Take Off
STAGE V
Resource Maturity
Growth achieved through creativity
Open to crisis of leadership
Growth achieved through direction
Open to crisis of autonomy
Growth achieved through delegation
Open to crisis of control
Growth achieved through coordination
Open to crisis of bureaucracy
Growth achieved through collaboration
Open to various forms of crises
Age of CompanyYOUNG MATURE
Size andComplexity
SMALL
LARGE
Source: Churchill & Lewis, The Five Stages of Small Business Growth, Harvard Business Review
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Each stage also requires a different management style, a different strategic focus, and has a different state of systems and processesFive Stages of Small Business Growth – Defining Characteristics
As each stage requires a different management style, it is common for the management team to also change as the company grows from small to enterprise.
STAGE I
Existence
STAGE II
Survival
STAGE III
Success
STAGE IV
Take Off
STAGE V
Resource Maturity
Direct supervision—the owner manages everyone and everything
Supervised supervision—owners becomes more of an administrator
Functional Divisional Line and staff
Existence—may experiment with several value propositions and business models
Survival—strong focus on cash flow
Maintaining profitable status quo—OR obtaining resources for growth
Growth Return on investment
Minimal to nonexistent—most processes are ad hoc and not repeated
Minimal—systems and processes highly dependent on Excel
Basic—repeatable processes begin taking shape, but are not scalable
Developing—systems becoming more refined
Maturing—consider implementing full ERP system
MANAGEMENTSTYLE
STRATEGICFOCUS
STATE OFSYSTEMS AND
PROCESS
Source: Steinmetz, Critical Stages of Small Business Growth, Business Horizons
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The focus of businesses in Stage II, Survival, is to optimize cash flowStage II – Survival STAGE I
Existence
STAGE II
Survival
STAGE III
Success
STAGE IV
Take Off
STAGE V
Resource Maturity
OVERVIEW
• Reaching this stage demonstrates that the business is a workable business entity
• Its value proposition and business model have been tested—it has customers and satisfies them sufficiently with its products or services to retain them
• The key problem will shift from mere existence to the relationship between revenues and expenses—i.e. cash flow
• Some businesses can stuck in this stage—they earn marginal returns on invested time and capital; eventually, they go out of business when the owner gives up, or retires, or sells it (usually at a slight loss)
KEY QUESTIONS & CHALLENGES
• In the short run, can we generate enough cash to break even and to cover the repair or replacement of our capital assets as needed?
• Minimally, can we generate enough cash flow to stay in business and to finance growth to a size that is sufficiently large, given our industry and market niche, to an economic return on our assets and labor?
EXAMPLES
• “mom and pop” stores (example of businesses stuck in this stage)
MANAGEMENT STYLE
Supervised supervision—limited number of employees supervised by a sales manager or general foreman
STRATEGIC FOCUS
Survival—optimize cash flow
ORGANIZATIONAL STATE
STATE OF SYSTEMS &
PROCESSES
Systems development is minimal—formal planning consists of cash forecasting, at best
BUSINESS & OWNER
Owner is still synonymous with the business
Owner Business
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In Stage III, Success, small business owners have an important decision—to risk it all in hopes of great success or to maintain and sustainStage III – Success STAGE I
Existence
STAGE II
Survival
STAGE III
Success
STAGE IV
Take Off
STAGE V
Resource Maturity
OVERVIEW
• At this stage, the owner is running a successful business and has options for growth
• Option A) the owner can expand the business
• Owner takes the cash and the established borrowing power of the company and risks it all to finance the continued growth of the company
• A key activity is to develop managers to meet the needs of the growing business
• Option B) the owner can maintain the business’s success and existing operations, so he can disengage and re-focus his energies on alternate activities (e.g. start a new company, run for political office, pursue a hobby, retire early, etc.)
• The company can stay at this stage indefinitely, providing environmental change does not destroy its market niche or ineffective management reduces its competitive abilities
KEY QUESTIONS & CHALLENGES
• Do I choose Option A) continue to invest and grow the company or Option B) maintain the business and begin to disengage?
EXAMPLES
• The virtual, minimal effort companies advocated by Tim Ferriss in the Four Hour Work Week (example of companies that choose option B in this stage)
MANAGEMENT STYLE
Functional—functional managers take over certain duties performed by the owner
STRATEGIC FOCUS
Option A) – maintaining profitable status quo
Option B) – Get resources for growth
ORGANIZATIONAL STATE
STATE OF SYSTEMS &
PROCESSES
Systems installed bearing forthcoming needs, operational planning in the form of budgets, strategic planning is extensive
BUSINESS & OWNER
Option A) Option B)
Owner Business
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Cash is a critical input to success in the beginning stages, as well during the Take Off phase to fuel acquisitions and marketing spendCritical Success Factors – Cash
There is little criticality of cash in Stage III, because the company has a profitable and sustainable business model (for its current scale).
STAGE I
Existence
STAGE II
Survival
STAGE III
Success
STAGE IV
Take Off
STAGE V
Resource Maturity
Size andComplexity
RELEVANTOR NATURALBY-PRODUCT
CRITICALTO SUCCESS Cash
Source: Churchill & Lewis, The Five Stages of Small Business Growth, Harvard Business Review
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As the owner grows its business, there is a clear trade-off in critical between the owner’s ability to execute versus his ability to delegateCritical Success Factors – Owner’s Abilities
The owner needs to recognize the need to delegate and relinquish responsibilities to ensure the company’s continued growth.
STAGE I
Existence
STAGE II
Survival
STAGE III
Success
STAGE IV
Take Off
STAGE V
Resource Maturity
Size andComplexity
RELEVANTOR NATURALBY-PRODUCT
CRITICALTO SUCCESS
Owner’s ability to execute
Owner’s ability to delegate
Source: Churchill & Lewis, The Five Stages of Small Business Growth, Harvard Business Review
THIS IS A PARTIAL PREVIEW
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9Questions & feedback? Email me – [email protected] diagrams in this pack are to be used by the original buyer only.
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KeyManagement
Factors
Additionally, we have identified 8 key management factors—4 company factors and 4 owner factorsCritical Success Factors – Key Management Factors
Financial Resources—including and borrowing power
Personnel Resources—relating to numbers, depth, and quality of people, particularly at the management and staff levels
Systems Resources—in terms of the degree of sophistication of both information, planning, and control systems
Business Resources—including customer relations, market share, supplier relations, manufacturing and distribution processes, technology, and reputation
Owner’s Goals—for himself and for the business
Owner’s Operational Abilities—in doing important jobs, such as marketing, innovation, producing, and managing distribution
Owner’s Managerial Ability—including willingness to delegate responsibility and to manage the activities of others
Owner’s Strategic Abilities—for looking beyond the present and matching the strengths and weaknesses of the company with his goals
COMPANY FACTORS OWNER FACTORS
1
2
3
4
5
6
7
8THIS IS A PARTIAL PREVIEW
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Though it is a long and difficult process to reach Stage 5, there are numerous lucrative exit opportunities along the wayEvolution of Small Companies
STAGE I
Existence
STAGE II
Survival
STAGE III
Success
STAGE IV
Take Off
STAGE V
Resource Maturity
To avoid bankruptcy, companies need to maintain their entrepreneurial culture by continuing to innovate and staying relevant.
Enter Stage II
Enter Stage III
Enter Stage IV
Enter Stage V
Sell Assets
GoBankrupt
Business is open!
Sell at a loss
GoBankrupt
Stuck in Stage II
Stuck in Stage III
GoBankrupt
Sell at a profit ($)
Drop back to Stage III
GoBankrupt
Sell at a profit ($$)
Drop back to Stage II
Operate
Drop back to Stage IV
GoBankrupt
Sell or merge($$$)
Growth
Growth
Growth
Growth
Growth
May be triggered from large market
change – e.g. disruptive technology
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END OF PARTIAL PREVIEW
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