Understanding the five stages of business and which one you fit into 

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Businesses come in all shapes and sizes, but generally, share two common denominators. Every business aims to provide a good or a service that people need—that requires defining a mission, vision, and purpose. Second, every business owner wants to grow. That requires determining the correct rate and scale, and that can be daunting. But just knowing where a business is in the growth process is incredibly important. Knowing an organization’s current state helps inform where a business is headed next.

Read more about the five stages of business below to learn more about traditional scalability. For budding business owners and aspiring entrepreneurs—what stage is your business currently in? What tools do you need to help you get to the next stage? What is your greatest challenge keeping you in your current stage? 

Seed Stage

At the seed stage, the core idea behind the business is just beginning to take shape. This is where the entrepreneur conceptualizes the business idea and lays the foundation for its launch. At this stage, the entrepreneur typically spends a lot of time researching and developing the concept. However, the business has yet to be launched, and there are no sales or revenue streams. The seed stage is usually financed privately, among family and friends so to speak, before any outside venture capital or investor funds are obtained. According to data presented by Pitchbook in 2017, the median seed deal size in the United States was $1 million, up from $500,000 in 2012. 

Questions to consider:

  • Have you developed a clear business idea?
  • Do you have a business plan in place?
  • Have you identified your target audience?

Startup Stage

A business’s launch officially comes in the start up stage. The startup phase is where we see the vast majority of businesses fail, and virtually no business is actually profitable in its first year. In fact, according to data from Zippia, in 2023, as many as 30% of businesses in the startup stage will fail, while 40% will eventually reach profitability. At this stage, the entrepreneur is generally focused on gaining traction and acquiring customers or users. The entrepreneur starts implementing the business plan and creating a product or service that appeals to the target audience. The startup stage is characterized by a lot of experimentation, learning, and pivoting based on customer feedback. At this stage, the business is still not profitable, and the successful entrepreneur should be keenly focused on scaling the business to achieve profitability.

Questions to consider:

  • Have you validated your business idea through customer feedback?
  • Are you generating consistent revenue?
  • Have you developed a marketing plan to acquire new customers?

Growth Stage

The growth stage is where the business starts generating consistent revenue and is on the path to profitability. The entrepreneur is focused on scaling the business by expanding the product line, entering new markets, and acquiring new customers or users. At this stage, the business may need to seek external funding to finance growth and capture additional market share, and the entrepreneur may need to hire additional staff to manage the increased workload.

Questions to consider:

  • Are you generating consistent revenue and achieving profitability?
  • Have you developed a growth plan to scale the business?
  • Do you have the right team in place to manage growth?

Expansion Stage

Within the previous growth stage, businesses adequately planning for the long haul will be laying the necessary groundwork for steady expansion. Within the expansion phase, the business has achieved profitability and now the priority is scaling operations. The entrepreneur may consider expanding into new markets, acquiring other relevant businesses or competitors, or introducing new products or services. At this stage, the business may need to seek additional funding from investors or financial institutions to finance expansion. Expansion needs to be managed with caution, as taking on debt, even after achieving profitability, can be risky. 

Questions to consider:

  • Have you identified new markets to expand into?
  • Are you considering acquiring other businesses to grow the company?
  • Do you have the financial resources to fund expansion?

Maturity Stage

The maturity stage is where the business has achieved a stable position in the market, and the entrepreneur is focused on maintaining profitability and market share. At this stage, the business may focus on optimizing operations and improving efficiency. The entrepreneur may also consider exiting the business through a sale or merger. According to Fortune, less than 4% of companies on the 2023 list are still run by their founders, simply due to the fact that the skills necessary to build a business may not always coincide with scaling it long term. 

Questions to consider:

  • Are you maintaining profitability and market share?
  • Have you optimized operations and improved efficiency?
  • Are you considering exiting the business through a sale or merger?

Understanding the different stages of business is crucial for making informed decisions and planning for the future. By identifying and understanding the stage one’s business is in, a leader can focus on the right strategies and initiatives to achieve the proper goals at that time. As a business leader, it’s important to regularly assess where the business is in its journey and adjust plans accordingly to ensure success.