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December 5, 2022 Expert’s Corner

3 stages of a company’s growth

Ken Cook
By Ken Cook

In thinking about growth, there are stages or life cycles that practically every company experiences.

These stages are not defined by time, but by the activities of the business.

Understanding what stage or life cycle a company is in is important because it provides context and clarity. Knowing where you are helps leaders focus on the activities that will drive growth and sustainability.

The first stage is the early stage, often defined as the hectic, crazy, scary, stressful, “am I out of my mind” stage. The early stage is the beginning, and the company looks for business wherever it can find it.

The goal is simple — get customers. The orientation of the early stage is selling, and sell some more, and then sell some more.

The ultimate early stage goal is stability — market awareness and customers who continue to buy. To reach stability, be sure to listen and be flexible in terms of products, services and response. It’s very seldom that someone gets it right the first time. Your customers will tell you with their purchasing decisions whether you have something they value and are willing to pay for.

If the organization listens well and responds well, the instability of early stage evolves to the more stable expansion stage of growth. In the expansion stage, the company breathes a little easier and begins to work on itself.

Cash flow is positive and more predictable. Management can take some time to focus closely on the infrastructure, systems, and employees needed to not only serve the existing customers, but also serve the additional customers that most surely are on the way.

Working on oneself also improves profitability. When revenue is all that is important, the profit margin becomes secondary. The “loss leader” becomes an acceptable strategy to gain market awareness and presence.

In the expansion stage, wean unprofitable or low-profit customers to higher-priced products and services, while simultaneously cutting costs by eliminating waste and poorly designed processes.

As time passes, all good things will eventually wind down. At some point in a foreseeable future, the customer base may be saturated, market conditions could change, technology alters the offerings, competitors surpass your offerings, etc. The ability to grow the business slows or even stalls out.

When this occurs, the business must experience some type of transition. The transition can be new products or services, new markets, new technologies, or even different industries.

What’s important is to recognize that a transition is necessary. If a transition does not occur, the business will eventually begin to decline.

Common to all three stages of growth is the focus on the customer and alignment of the company with their needs.

  • Early stage companies seek to find their place in the market and identify the customers they can best serve in a unique and valued way.
  • Expansion companies continue to explore and expand their customer base, and find ways to improve the value equation they offer them.
  • Companies facing a transition reinvent themselves and find new markets, or face the inevitable decline that will occur.

If company leadership understands where they are in terms of growth cycles, and puts the customer first, they should be able to define the activities that accelerate profitable growth and sustainability.

Ken Cook is the co-founder of How to Who, a source for expertise on how to build strong relationships, and how to build business through those relationships. Learn more at howtowho.com.

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