ArticlePDF Available


Develops a model relevant to small and growing businesses that delineates five stages of firm development. These stages are: (1) existence--concerned with garnering customers and delivering the product or service contracted for; (2) survival--firms have demonstrated that they are workable business entities, but the key question becomes whether there is enough money for the firm to break even and stay in business; (3) success--here the decision facing owners is whether to exploit the company's accomplishments and expand or keep the company stable and profitable, providing a base for alternative owner activities; (4) take-off--concerned with how to make the firm grow rapidly and how to finance this growth; and (5) resource maturity--companies have the advantages of size, financial resources, and managerial talent and will be a formidable force in the market if they retain their entrepreneurial spirit. Each stage is characterized by an index of size, diversity, and complexity and described by five management factors: managerial style, organizational structure, extent of formal systems, major strategic goals, and the owner's involvement in the business. In addition, this research identifies eight factors prominent in determining firm success or failure. They include: financial, personnel, systems and business resources and the owner's goals for him/herself, operational abilities in doing important jobs, managerial ability and willingness to delegate, and strategic ability for looking to the future. Knowing which development stage the firm is in will help managers, consultants, and investors make more informed choices and prepare the company for later challenges. (SFL)
The Five Stages of Small Business Growth
Neil C. Churchill is distinguished professor of accounting and director of the Caruth Institute of Owner-Managed
Business at Southern Methodist University. He has authored or coauthored three other articles for HBR, the most
recent two being: Dont Let Inflation Get the Best of You (MarchApril 1982) and Choosing and Evaluating Your
Accountant (with Louis A. Werbaneth, Jr., MayJune 1979). Virginia L. Lewis is a senior research associate of the
Caruth Institute at SMU.
Growing Concerns
The Five Stages of Small Business Growth
by Neil C. Churchill and Virginia L. Lewis
Categorizing the problems and growth patterns of small businesses in a systematic way that is useful to entrepreneurs
seems at first glance a hopeless task. Small businesses vary widely in size and capacity for growth. They are characterized
by independence of action, differing organizational structures, and varied management styles.
Yet on closer scrutiny, it becomes apparent that they experience common problems arising at similar stages in their
development. These points of similarity can be organized into a framework that increases our understanding of the nature,
characteristics, and problems of businesses ranging from a corner dry cleaning establishment with two or three minimum-
wage employees to a $20-million-a-year computer software company experiencing a 40% annual rate of growth.
For owners and managers of small businesses, such an understanding can aid in assessing current challenges; for example,
the need to upgrade an existing computer system or to hire and train second-level managers to maintain planned growth.
It can help in anticipating the key requirements at various pointse.g., the inordinate time commitment for owners during the
start-up period and the need for delegation and changes in their managerial roles when companies become larger and more
The framework also provides a basis for evaluating the impact of present and proposed governmental regulations and
policies on ones business. A case in point is the exclusion of dividends from double taxation, which could be of great help to
a profitable, mature, and stable business like a funeral home but of no help at all to a new, rapidly growing, high-technology
Finally, the framework aids accountants and consultants in diagnosing problems and matching solutions to smaller
enterprises. The problems of a 6-month-old, 20-person business are rarely addressed by advice based on a 30-year-old, 100-
person manufacturing company. For the former, cash-flow planning is paramount; for the latter, strategic planning and
budgeting to achieve coordination and operating control are most important.
Developing a Small Business Framework
Various researchers over the years have developed models for examining businesses (see Exhibit 1). Each uses business
size as one dimension and company maturity or the stage of growth as a second dimension. While useful in many respects,
these frameworks are inappropriate for small businesses on at least three counts. (1 of 12) [28.10.2007 г. 22:13:21]
The Five Stages of Small Business Growth
First, they assume that a company must grow and pass through all stages of development or die in the attempt. Second, the
models fail to capture the important early stages in a companys origin and growth. Third, these frameworks characterize
company size largely in terms of annual sales (although some mention number of employees) and ignore other factors such
as value added, number of locations, complexity of product line, and rate of change in products or production technology.
To develop a framework relevant to small and growing businesses, we used a combination of experience, a search of the
literature, and empirical research. (See the second insert.) The framework that evolved from this effort delineates the five
stages of development shown in Exhibit 2. Each stage is characterized by an index of size, diversity, and complexity and
described by five management factors: managerial style, organizational structure, extent of formal systems, major strategic
goals, and the owners involvement in the business. We depict each stage in Exhibit 3 and describe each narratively in this
About the Research (Located at the end of this article) (2 of 12) [28.10.2007 г. 22:13:21]
The Five Stages of Small Business Growth
Stage I: Existence
In this stage the main problems of the business are obtaining customers and delivering the product or service contracted for.
Among the key questions are the following:
Can we get enough customers, deliver our products, and provide services well enough to become a viable business? (3 of 12) [28.10.2007 г. 22:13:21]
The Five Stages of Small Business Growth
Can we expand from that one key customer or pilot production process to a much broader sales base?
Do we have enough money to cover the considerable cash demands of this start-up phase?
The organization is a simple onethe owner does everything and directly supervises subordinates, who should be of at least
average competence. Systems and formal planning are minimal to nonexistent. The companys strategy is simply to remain
alive. The owner is the business, performs all the important tasks, and is the major supplier of energy, direction, and, with
relatives and friends, capital.
Companies in the Existence Stage range from newly started restaurants and retail stores to high-technology manufacturers
that have yet to stabilize either production or product quality. Many such companies never gain sufficient customer
acceptance or product capability to become viable. In these cases, the owners close the business when the start-up capital
runs out and, if theyre lucky, sell the business for its asset value. (See endpoint 1 on Exhibit 4). In some cases, the owners
cannot accept the demands the business places on their time, finances, and energy, and they quit. Those companies that
remain in business become Stage II enterprises.
Stage II: Survival
In reaching this stage, the business has demonstrated that it is a workable business entity. It has enough customers and
satisfies them sufficiently with its products or services to keep them. The key problem thus shifts from mere existence to the
relationship between revenues and expenses. The main issues are as follows:
In the short run, can we generate enough cash to break even and to cover the repair or replacement of our capital assets
as they wear out?
Can we, at a minimum, 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 earn an economic return on our assets and labor?
The organization is still simple. The company may have a limited number of employees supervised by a sales manager or a
general foreman. Neither of them makes major decisions independently, but instead carries out the rather well-defined orders
of the owner. (4 of 12) [28.10.2007 г. 22:13:21]
The Five Stages of Small Business Growth
Systems development is minimal. Formal planning is, at best, cash forecasting. The major goal is still survival, and the owner
is still synonymous with the business.
In the Survival Stage, the enterprise may grow in size and profitability and move on to Stage III. Or it may, as many
companies do, remain at the Survival Stage for some time, earning marginal returns on invested time and capital (endpoint 2
on Exhibit 4), and eventually go out of business when the owner gives up or retires. 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.
Stage III: Success
The decision facing owners at this stage is whether to exploit the companys accomplishments and expand or keep the
company stable and profitable, providing a base for alternative owner activities. Thus, a key issue is whether to use the
company as a platform for growtha substage III-G companyor as a means of support for the owners as they completely
or partially disengage from the companymaking it a substage III-D company. (See Exhibit 3.) Behind the disengagement
might be a wish to start up new enterprises, run for political office, or simply to pursue hobbies and other outside interests
while maintaining the business more or less in the status quo.
Substage III-D.
In the Success-Disengagement substage, the company has attained true economic health, has sufficient size and product-
market penetration to ensure economic success, and earns average or above-average profits. The company can stay at this
stage indefinitely, provided environmental change does not destroy its market niche or ineffective management reduce its
competitive abilities.
Organizationally, the company has grown large enough to, in many cases, require functional managers to take over certain
duties performed by the owner. The managers should be competent but need not be of the highest caliber, since their
upward potential is limited by the corporate goals. Cash is plentiful and the main concern is to avoid a cash drain in
prosperous periods to the detriment of the companys ability to withstand the inevitable rough times.
In addition, the first professional staff members come on board, usually a controller in the office and perhaps a production
scheduler in the plant. Basic financial, marketing, and production systems are in place. Planning in the form of operational
budgets supports functional delegation. The owner and, to a lesser extent, the companys managers, should be monitoring a
strategy to, essentially, maintain the status quo.
As the business matures, it and the owner increasingly move apart, to some extent because of the owners activities
elsewhere and to some extent because of the presence of other managers. Many companies continue for long periods in the
Success-Disengagement substage. The product-market niche of some does not permit growth; this is the case for many
service businesses in small or medium-sized, slowly growing communities and for franchise holders with limited territories.
Other owners actually choose this route; if the company can continue to adapt to environmental changes, it can continue as
is, be sold or merged at a profit, or subsequently be stimulated into growth (endpoint 3 on Exhibit 4). For franchise holders,
this last option would necessitate the purchase of other franchises.
If the company cannot adapt to changing circumstances, as was the case with many automobile dealers in the late 1970s
and early 1980s, it will either fold or drop back to a marginally surviving company (endpoint 4 on Exhibit 4).
Substage III-G.
In the Success-Growth substage, the owner consolidates the company and marshals resources for growth. The owner takes
the cash and the established borrowing power of the company and risks it all in financing growth.
Looking Back on Business Development Models (Located at the end of this article)
Among the important tasks are to make sure the basic business stays profitable so that it will not outrun its source of cash
and to develop managers to meet the needs of the growing business. This second task requires hiring managers with an eye
to the companys future rather than its current condition.
Systems should also be installed with attention to forthcoming needs. Operational planning is, as in substage III-D, in the
form of budgets, but strategic planning is extensive and deeply involves the owner. The owner is thus far more active in all
phases of the companys affairs than in the disengagement aspect of this phase. (5 of 12) [28.10.2007 г. 22:13:21]
The Five Stages of Small Business Growth
If it is successful, the III-G company proceeds into Stage IV. Indeed, III-G is often the first attempt at growing before
commitment to a growth strategy. If the III-G company is unsuccessful, the causes may be detected in time for the company
to shift to III-D. If not, retrenchment to the Survival Stage may be possible prior to bankruptcy or a distress sale.
Stage IV: Take-off
In this stage the key problems are how to grow rapidly and how to finance that growth. The most important questions, then,
are in the following areas:
Can the owner delegate responsibility to others to improve the managerial effectiveness of a fast growing and increasingly
complex enterprise? Further, will the action be true delegation with controls on performance and a willingness to see
mistakes made, or will it be abdication, as is so often the case?
Will there be enough to satisfy the great demands growth brings (often requiring a willingness on the owners part to tolerate
a high debt-equity ratio) and a cash flow that is not eroded by inadequate expense controls or ill-advised investments brought
about by owner impatience?
The organization is decentralized and, at least in part, divisionalizedusually in either sales or production. The key
managers must be very competent to handle a growing and complex business environment. The systems, strained by
growth, are becoming more refined and extensive. Both operational and strategic planning are being done and involve
specific managers. The owner and the business have become reasonably separate, yet the company is still dominated by
both the owners presence and stock control.
This is a pivotal period in a companys life. 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 soldat a profitprovided 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 (the owner falls victim to the omnipotence syndrome), or are
unable to delegate effectively enough to make the company work (the omniscience syndrome).
It is, of course, possible for the company to traverse this high-growth stage without the original management. Often the
entrepreneur who founded the company and brought it to the Success Stage is replaced either voluntarily or involuntarily by
the companys investors or creditors.
If the company fails to make the big time, it may be able to retrench and continue as a successful and substantial company at
a state of equilibrium (endpoint 7 on Exhibit 4). Or it may drop back to Stage III (endpoint 6) or, if the problems are too
extensive, it may drop all the way back to the Survival Stage (endpoint 5) or even fail. (High interest rates and uneven
economic conditions have made the latter two possibilities all too real in the early 1980s.)
Stage V: Resource Maturity
The greatest concerns of a company entering this stage are, first, to consolidate and control the financial gains brought on by
rapid growth and, second, to retain the advantages of small size, including flexibility of response and the entrepreneurial
spirit. 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 systemsand do this without stifling its entrepreneurial qualities.
A company in Stage V has the staff and financial resources to engage in detailed operational and strategic planning. The
management is decentralized, adequately staffed, and experienced. And systems are extensive and well developed. The
owner and the business are quite separate, both financially and operationally.
The company has now arrived. It has the advantages of size, financial resources, and managerial talent. If it can preserve its
entrepreneurial spirit, it will be a formidable force in the market. If not, it may enter a sixth stage of sorts: ossification.
Ossification is characterized by a lack of innovative decision making and the avoidance of risks. It seems most common in
large corporations whose sizable market share, buying power, and financial resources keep them viable until there is a major
change in the environment. Unfortunately for these businesses, it is usually their rapidly growing competitors that notice the (6 of 12) [28.10.2007 г. 22:13:21]
The Five Stages of Small Business Growth
environmental change first.
Key Management Factors
Several factors, which change in importance as the business grows and develops, are prominent in determining ultimate
success or failure.
We identified eight such factors in our research, of which four relate to the enterprise and four to the owner. The four that
relate to the company are as follows:
1. Financial resources, including cash and borrowing power.
2. Personnel resources, relating to numbers, depth, and quality of people, particularly at the management and staff levels.
3. Systems resources, in terms of the degree of sophistication of both information and planning and control systems.
4. Business resources, including customer relations, market share, supplier relations, manufacturing and distribution
processes, technology and reputation, all of which give the company a position in its industry and market.
The four factors that relate to the owner are as follows:
1. Owners goals for himself or herself and for the business.
2. Owners operational abilities in doing important jobs such as marketing, inventing, producing, and managing distribution.
3. Owners managerial ability and willingness to delegate responsibility and to manage the activities of others.
4. Owners strategic abilities for looking beyond the present and matching the strengths and weaknesses of the company with
his or her goals.
As a business moves from one stage to another, the importance of the factors changes. We might view the factors as
alternating among three levels of importance: first, key variables that are absolutely essential for success and must receive
high priority; second, factors that are clearly necessary for the enterprises success and must receive some attention; and
third, factors of little immediate concern to top management. If we categorize each of the eight factors listed previously,
based on its importance at each stage of the companys development, we get a clear picture of changing management
demands. (See Exhibit 5.) (7 of 12) [28.10.2007 г. 22:13:21]
The Five Stages of Small Business Growth
Varying Demands
The changing nature of managerial challenges becomes apparent when one examines Exhibit 5. In the early stages, the
owners ability to do the job gives life to the business. Small businesses are built on the owners talents: the ability to sell,
produce, invent, or whatever. This factor is thus of the highest importance. The owners ability to delegate, however, is on the
bottom of the scale, since there are few if any employees to delegate to.
As the company grows, other people enter sales, production, or engineering and they first support, and then even supplant,
the owners skillsthus reducing the importance of this factor. At the same time, the owner must spend less time doing and
more time managing. He or she must increase the amount of work done through other people, which means delegating. The
inability of many founders to let go of doing and to begin managing and delegating explains the demise of many businesses
in substage III-G and Stage IV.
The owner contemplating a growth strategy must understand the change in personal activities such a decision entails and
examine the managerial needs depicted in Exhibit 5. Similarly, an entrepreneur contemplating starting a business should
recognize the need to do all the selling, manufacturing, or engineering from the beginning, along with managing cash and
planning the businesss courserequirements that take much energy and commitment.
The importance of cash changes as the business changes. It is an extremely important resource at the start, becomes easily
manageable at the Success Stage, and is a main concern again if the organization begins to grow. As growth slows at the
end of Stage IV or in Stage V, cash becomes a manageable factor again. The companies in Stage III need to recognize the
financial needs and risk entailed in a move to Stage IV.
The issues of people, planning, and systems gradually increase in importance as the company progresses from slow initial
growth (substage III-G) to rapid growth (Stage IV). These resources must be acquired somewhat in advance of the growth
stage so that they are in place when needed. Matching business and personal goals is crucial in the Existence Stage
because the owner must recognize and be reconciled to the heavy financial and time-energy demands of the new business.
Some find these demands more than they can handle. In the Survival Stage, however, the owner has achieved the
necessary reconciliation and survival is paramount; matching of goals is thus irrelevant in Stage II.
A second serious period for goal matching occurs in the Success Stage. Does the owner wish to commit his or her time and (8 of 12) [28.10.2007 г. 22:13:21]
The Five Stages of Small Business Growth
risk the accumulated equity of the business in order to grow or instead prefer to savor some of the benefits of success? All
too often the owner wants both, but to expand the business rapidly while planning a new house on Maui for long vacations
involves considerable risk. To make a realistic decision on which direction to take, the owner needs to consider the personal
and business demands of different strategies and to evaluate his or her managerial ability to meet these challenges.
Finally, business resources are the stuff of which success is made; they involve building market share, customer relations,
solid vendor sources, and a technological base, and are very important in the early stages. In later stages the loss of a major
customer, supplier, or technical source is more easily compensated for. Thus, the relative importance of this factor is shown
to be declining.
The changing role of the factors clearly illustrates the need for owner flexibility. An overwhelming preoccupation with cash is
quite important at some stages and less important at others. Delaying tax payments at almost all costs is paramount in
Stages I and II but may seriously distort accounting data and use up management time during periods of success and
growth. Doing versus delegating also requires a flexible management. Holding onto old strategies and old ways ill serves
a company that is entering the growth stages and can even be fatal.
Avoiding Future Problems
Even a casual look at Exhibit 5 reveals the demands the Take-off Stage makes on the enterprise. Nearly every factor except
the owners ability to do is crucial. This is the stage of action and potentially large rewards. Looking at this exhibit, owners
who want such growth must ask themselves:
Do I have the quality and diversity of people needed to manage a growing company?
Do I have now, or will I have shortly, the systems in place to handle the needs of a larger, more diversified company?
Do I have the inclination and ability to delegate decision making to my managers?
Do I have enough cash and borrowing power along with the inclination to risk everything to pursue rapid growth?
Similarly, the potential entrepreneur can see that starting a business requires an ability to do something very well (or a good
marketable idea), high energy, and a favorable cash flow forecast (or a large sum of cash on hand). These are less important
in Stage V, when well-developed people-management skills, good information systems, and budget controls take priority.
Perhaps this is why some experienced people from large companies fail to make good as entrepreneurs or managers in
small companies. They are used to delegating and are not good enough at doing.
Applying the Model
This scheme can be used to evaluate all sorts of small business situations, even those that at first glance appear to be
exceptions. Take the case of franchises. These enterprises begin the Existence Stage with a number of differences from
most start-up situations. They often have the following advantages:
A marketing plan developed from extensive research.
Sophisticated information and control systems in place.
Operating procedures that are standardized and very well developed.
Promotion and other start-up support such as brand identification.
They also require relatively high start-up capital.
If the franchisor has done sound market analysis and has a solid, differentiated product, the new venture can move rapidly
through the Existence and Survival Stageswhere many new ventures founderand into the early stages of Success. The
costs to the franchisee for these beginning advantages are usually as follows:
Limited growth due to territory restrictions. (9 of 12) [28.10.2007 г. 22:13:21]
The Five Stages of Small Business Growth
Heavy dependence on the franchisor for continued economic health.
Potential for later failure as the entity enters Stage III without the maturing experiences of Stages I and II.
One way to grow with franchising is to acquire multiple units or territories. Managing several of these, of course, takes a
different set of skills than managing one and it is here that the lack of survival experience can become damaging.
Another seeming exception is high-technology start-ups. These are highly visible companiessuch as computer software
businesses, genetic-engineering enterprises, or laser-development companiesthat attract much interest from the
investment community. Entrepreneurs and investors who start them often intend that they grow quite rapidly and then go
public or be sold to other corporations. This strategy requires them to acquire a permanent source of outside capital almost
from the beginning. The providers of this cash, usually venture capitalists, may bring planning and operating systems of a
Stage III or a Stage IV company to the organization along with an outside board of directors to oversee the investment.
The resources provided enable this entity to jump through Stage I, last out Stage II until the product comes to market, and
attain Stage III. At this point, the planned strategy for growth is often beyond the managerial capabilities of the founding
owner and the outside capital interests may dictate a management change. In such cases, the company moves rapidly into
Stage IV and, depending on the competence of the development, marketing, and production people, the company becomes a
big success or an expensive failure. The problems that beset both franchises and high-technology companies stem from a
mismatch of the founders problem-solving skills and the demands that forced evolution brings to the company.
Besides the extreme examples of franchises and high-technology companies, we found that while a number of other
companies appeared to be at a given stage of development, they were, on closer examination, actually at one stage with
regard to a particular factor and at another stage with regard to the others. For example, one company had an abundance of
cash from a period of controlled growth (substage III-G) and was ready to accelerate its expansion, while at the same time
the owner was trying to supervise everybody (Stages I or II). In another, the owner was planning to run for mayor of a city
(substage III-D) but was impatient with the companys slow growth (substage III-G).
Although rarely is a factor more than one stage ahead of or behind the company as a whole, an imbalance of factors can
create serious problems for the entrepreneur. Indeed, one of the major challenges in a small company is the fact that both
the problems faced and the skills necessary to deal with them change as the company grows. Thus, owners must anticipate
and manage the factors as they become important to the company.
A companys development stage determines the managerial factors that must be dealt with. Its plans help determine which
factors will eventually have to be faced. Knowing its development stage and future plans enables managers, consultants, and
investors to make more informed choices and to prepare themselves and their companies for later challenges. While each
enterprise is unique in many ways, all face similar problems and all are subject to great changes. That may well be why being
an owner is so much fun and such a challenge.
About the Research
We started with a concept of growth stages emanating from the work of Steinmetz and Greiner. We made two initial changes
based on our experiences with small companies.
The first modification was an extension of the independent (vertical) variable of size as it is used in the other stage models
see Exhibit I to include a composite of value-added (sales less outside purchases), geographical diversity, and complexity;
the complexity variable involved the number of product lines sold, the extent to which different technologies are involved in
the products and the processes that produce them, and the rate of change in these technologies.
Thus, a manufacturer with $10 million in sales, whose products are based in a fast-changing technical environment, is farther
up the vertical scale (bigger in terms of the other models) than a liquor wholesaler with $20 million annual sales. Similarly, a
company with two or three operating locations faces more complex management problems, and hence is farther up the scale
than an otherwise comparable company with one operating unit.
The second change was in the stages or horizontal component of the framework. From present research we knew that, at
the beginning, the entrepreneur is totally absorbed in the businesss survival and if the business survives it tends to evolve
toward a decentralized line and staff organization characterized as a big business and the subject of most studies.
result was a four-stage model: (1) Survival, (2) Break-out, (3) Take-off, (4) Big company. (10 of 12) [28.10.2007 г. 22:13:21]
The Five Stages of Small Business Growth
To test the model, we obtained 83 responses to a questionnaire distributed to 110 owners and managers of successful small
companies in the $1 million to $35 million sales range. These respondents participated in a small company management
program and had read Greiners article. They were asked to identify as best they could the phases or stages their companies
had passed through, to characterize the major changes that took place In each stage, and to describe the events that led up
to or caused these changes.
A preliminary analysis of the questionnaire data revealed three deficiencies in our initial model:
First, the grow-or-fail hypothesis implicit in the model, and those of others, was invalid. Some of the enterprises had passed
through the survival period and then plateauedremaining essentially the same size. with some marginally profitable and
others very profitable, over a period of between 5 and 80 years.
Second, there existed an early stage in the survival period in which the entrepreneur worked hard just to exist- to obtain
enough customers to become a true business or to move the product from a pilot stage into quantity production at an
adequate level of quality.
Finally, several responses dealt with companies that were not started from scratch but purchased while in a steady-state
survival or success stage (and were either being mismanaged or managed for profit and not for growth), and then moved into
a growth mode.
We used the results of this research to revise our preliminary framework. The resulting framework is shown in Exhibit II. We
then applied this revised framework to the questionnaire responses and obtained results which encouraged us to work with
the revised model:
* John A. Welsh and Jerry F. White, Recognizing and Dealing With the Entrepreneur, Advanced Management Journal, Summer 1978.
Looking Back on Business Development Models
Business researchers have developed a number of models over the last 20 years that seek to delineate stages of corporate
growth. (11 of 12) [28.10.2007 г. 22:13:21]
The Five Stages of Small Business Growth
Joseph W. McGuire, building on the work of W.W. Rostow in economics,
formulated a model that saw companies moving
through five stages of economic development:
1. Traditional small company.
2. Planning for growth.
3. Take-off or departure from existing conditions.
4. Drive to professional management.
5. Mass production marked by a diffusion of objectives and an interest in the welfare of society.
Lawrence L. Steinmetz theorized that to survive, small businesses must move through four stages of growth. Steinmetz
envisioned each stage ending with a critical phase that must be dealt with before the company could enter the next stage.
His stages and phases are as follows:
1. Direct supervision. The simplest stage, at the end of which the owner must become a manager by learning to delegate to
2. Supervised supervision. To move on, the manager must devote attention to growth and expansion, manage increased
overhead and complex finances, and learn to become an administrator.
3. Indirect control. To grow and survive, the company must learn to delegate tasks to key managers and to deal with
diminishing absolute rate of return and overstaffing at the middle levels.
4. Divisional organization. At this stage the company has arrived and has the resources and organizational structure that
will enable it to remain viable.
C. Roland Christensen and Bruce R. Scott focused on development of organizational complexity in a business as it evolves
in its product-market relationships. They formulated three stages that a company moves through as it grows in overall size,
number of products, and market coverage:
1. One-unit management with no specialized organizational parts.
2. One-unit management with functional parts such as marketing and finance.
3. Multiple operating units, such as divisions, that act in their own behalf in the marketplace.
Finally, Larry E. Greiner proposed a model of corporate evolution in which business organizations move through five phases
of growth as they make the transition from small to large (in sales and employees) and from young to mature.
Each phase is
distinguished by an evolution from the prior phase and then by a revolution or crisis, which precipitates a jump into the next
phase. Each evolutionary phase is characterized by a particular managerial style and each revolutionary period by a
dominant management problem faced by the company. These phases and crises are shown in Exhibit 1.
*W.W. Rostow, The Stages of Economic Growth (Cambridge, England: Cambridge University Press, 1960).
Joseph W. McGuire, Factors Affecting the Growth of Manufacturing Firms (Seattle: Bureau of Business Research, University of Washington, 1963).
§Lawrence L. Steinmetz, Critical Stages of Small Business Growth: When They Occur and How to Survive Them, Business Horizons, February
1969, p. 29.
C. Roland Christensen and Bruce R. Scott, Review of Course Activities (Lausanne: IMEDE, 1964).
||Larry E. Greiner, Evolution and Revolution as Organizations Growth, HBR JulyAugust 1972, p. 37. (12 of 12) [28.10.2007 г. 22:13:21]
... Succession can represent a strategic opportunity for an organisation, particularly for those firms in growing and dynamic markets, not to mention rapidly growing firms whose managerial needs are changing 7 (Churchill & Lewis, 1983). The neglect of both the processual and the strategic aspects of succession are informed by intentions, attitudes and behaviour as theory of planned behaviour suggests. ...
... Succession can represent a strategic opportunity for an organisation, particularly for those firms in growing and dynamic markets, not to mention rapidly growing firms whose managerial needs are changing 7 (Churchill & Lewis, 1983). The neglect of both the processual and the strategic aspects of succession are informed by intentions, attitudes and behaviour as theory of planned behaviour suggests. ...
Full-text available
The focus of this paper was to examine perceptions of succession planning by owners/founders of family businesses and its importance in ensuring the continuity and prosperity of businesses in the WaMunicipality,Ghana. An interview schedule was used to collect data from arandomsample of 205 enterprisesout of 440 family businesses, and these data were analysed by using descriptive and inferential statistics. The findings indicate that majority (94.1%) of owners/founders perceive business planning as an important skill, while the ability to develop a business strategy has a positive impact on succession and leads to continuity.Owners/founders with high level of formal education tend to have positive perception of the importance of succession planning and business continuity as compared with those with lower levels of formal education. Majority of owners/founders perceive that business continuity benefits the founder, the successor, the family and other stakeholders. It is therefore recommended that founders or owners of FOBs should make provision for the education and training of potential successors to facilitate succession for continuity.
... If they are successful, they can expand or open a second store and grow into a firm or even a global corporation. Other businesses decentralize and become a collection of franchises 29 . In each stage the key to success is training others, adopting best practices, and building a culture of belief around the method. ...
... Ovat (2013) and Afolabi (2013) had observed that the bane of SMEs in Nigeria is financial constraint. Churchill and Lewis (1983) identified growth stage models; an attempt to link growth with stages of development. However, more examination is needed of SME's capability to adapt, deploy skills, focus assets, and of how such procedures lead to ultimate success. ...
... The results of our analyses also showed the coexistence of companies operating at high levels of performance in terms of profitability, productivity and efficiency and companies that, on the contrary, are in critical conditions. This is confirmed by the scientific literature, according to which, in Western markets, few MSMEs are able to succeed and grow, while the majority remain small, or exit the market definitively (Birley, Westhead, 1990;Lewis, Churchill, 1983). As indicated in the literature for other countries (Cabras, Bamforth, 2015), Italy is also undergoing some transformations within the craft beer segment. ...
Full-text available
The aim of this paper is to identify the path of the gasoline price elasticity, ethanol price elasticity, ethanol-gasoline cross-price elasticity and the gasoline-ethanol cross-price elasticity for the flex-fuel vehicle market, as well as to discuss the taxation policies impact of the Economic Domain Intervention Contribution (CIDE) on the ethanol and gasoline markets in Brazil. Therefore, it was used the Structural Methodology model, as well as official data from 2003 to 2007. The results show great power of influence of the tax on the gasoline’s price and on the costumer’s choice between ethanol or gasoline. Thus, the CIDE is one of the most important reasons for ethanol consume, contributing to an effective reduction in the green house gases and atmospheric pollutants emissions.
... Liñán (2004) distinguished between four types of entrepreneurship education: entrepreneurship awareness education, education for start-up, education for entrepreneurial dynamism, and continuing education for entrepreneurs. Thus, the type of training required is sometimes associated with the growth stage of the enterprise, from existence through survival, success, take off and resource maturity (Churchill & Lewis, 1983), or the individual's stage in the entrepreneurship career path, from foundation to awakening, specialisation, creation, and maturing (Carayannis, Evans & Hanson, 2003). Further, a reconceptualization of the individualopportunity nexus in the entrepreneurship education process recognises the different starting points of individual students, and how this shapes not only the learning process but also the role of the educator in providing a platform that supports learners' individual journey (Thrane et al., 2016). ...
This paper investigated the relationship between entrepreneurial training , entrepreneurial skills and new venture performance in Northern Nigeria where, in recent years, Boko Haram terrorist insurgency has precipitated a severe humanitarian crisis and a high level of disruption to economic activities. The study is based on a new survey data from a representative sample of 331 undergraduate entrepreneurs, analysed using Structural Equation Modelling and Ordinary Least Squares (OLS) regression. The results show that there is significant impact of entrepreneurship education on business performance partially mediated by entrepreneurial skills. The findings of this study also shows that entrepreneurial skills is a significant moderator of the relationship between perceived environmental turbulence and new venture performance. These suggest that enhanced skills make a difference on business survival and performance amid the uncertainty, market disruption and physical danger precipitated by the insurgency. Finally, the paper highlights the need for entrepreneurship education programmes should be designed around specific skills requirements and the peculiarities of the local contexts. Journal of International Business Education Journal Home Page :
... Existing findings suggest that younger firms have some "learning advantages" because they have less to unlearn [36]. They are more ready for improvisation and learning through doing and having to "fight fires" [37], preferring contingency and experimentation, trial-and-error learning, and imitation over careful planning and replication of previously established routines. Newly formed entrepreneurial ventures rely on dynamic capabilities for and by enabling new resources creation for and by alteration of an existing resource base, as well as by creating, integrating, recombining, and releasing resources [4]. ...
Full-text available
The study provides a framework and research agenda for investigating factors that contribute to the sustainability and growth of entrepreneurial ventures operating in environments of regime change. The suggested framework builds on Herbert Simon's [1] science of design, as later extended to concepts of entrepreneurship as creation [2] and effectuation [3], in order to describe the nature of entrepreneurial actions in an e7nvironment of regime change. The framework integrates theory on organizational capabilities [4] to locate mechanisms behind entrepreneurs' successful efforts to equip their ventures with capabilities for sustainability and growth. The study offers a pragmatism-driven methodology for studying ventures as artifacts created by entrepreneurs that practice the even-if principle of non-predictable control when navigating the challenges of regime change.
... At the same time, he is critical of views that define new companies according to their age and size as these are very specific conditions that depend on context and the characteristics of a sector such as complexity and technical intensity. Freeman, Engel (2007) noted that the lifespan of stages depends on the specifics of the company: for example, time for internet companies can be measured in months; software companies -years, and biotechnology companiesin (Mueller, 1972;Miller, Friesen, 1984;Baird, Meshoulam, 1988;Lester et al., 2003;Adizes, 2004;Richard et al. 2006), other authors bypass this stage (Greiner, 1972;Jawahar and McLaughlin, 2001;Churchill and Lewis, 1983). Such difference in outlook could be explained by arguing that some researchers concentrate on a lifecycle that, step by step, allows start-ups to survive and strive, while others rely on certain patterns of outlook, actions and indications at each stage which might lead to a company's "death" or closure. ...
Full-text available
The purpose of the paper is to create grounded theory to reveal the problems of the right team development process of the early stage start-ups and to explain how the main challenges of the process are being solved. A structured grounded theory (GT) has been chosen based on the combination of deductive and inductive approaches, revealing a contextual epistemological view, which is important when explaining the phenomenon through the experience of the research participants. GT helped to reveal concepts and their relations, relevant to the understanding of a right team of start-ups. The concept of the right team of an early stage start-up includes primary founders having the right competences, having a team leader and other team members having the right competences. The competences of the right team include knowledge, experience and characteristics that influence the development process and help successfully overcome the challenges of an early stage start-up.
This study is aimed at investigating the relationship between the entrepreneurial characteristics and the performance of Small and Medium-sized Enterprises (SMEs) under the context of manufacturing industry in Khulna. Based on literature review, a theoretical model relating entrepreneurial characteristics from a competency approach to the performance of SMEs has been developed. The empirical research involved quantitative stages. Data were collected from 100 owners or managers of SMEs in the field of manufacturing industry in Khulna. The six groups of competencies including opportunity, organising, relationship, strategic, commitment, and conceptual competencies were identified. The findings of the study show that all the competencies are required by entrepreneurs of manufacturing industry to enhance the performance of their firms. Among them, opportunity, organising, relationship, and strategic competencies have significant impact on the performance of the firms. Other two competency areas-commitment and conceptual competencies are not significant for firm performance at this moment. But in the long run, entrepreneurs should focus on all the competencies for better future performance.
Full-text available
Számos kísérlet történt, a szakirodalomban és a popkultúrában is, a vállalkozók sikereihez vezető okok megértésére, a kulcssikertényezők azonosítására, ezek alapján a vállalkozói sikerek előre jelzésére. Az itt bemutatott kutatás a problémát a vezetői kompetenciák irányából közelíti meg. Azt tűzi ki célul, hogy megvizsgálja, kialakítható-e egy, a sikeres vállalkozókra jellemző vezetői kompetenciamodell, amely segít megérteni a fenti kérdést. A tanulmány bemutat négy vezetői kompetenciadimenziót és ezek alapján három vezetői stílust, amelyek jellemzők a sikeres vállalkozókra. A vállalkozások vezetői eltérő vezetői stratégiákat követhetnek és a sikeres vállalkozók sokrétű kompetenciaarzenállal rendelkeznek. Nem hagyatkoznak csak egy-egy kompetencia, illetve kompetenciadimenzió egyoldalú használatára. A vállalkozókat egymástól megkülönböztető kompetenciakészleteken túl azonosításra került egy kompetenciacsoport, amely a vállalkozóvá válást támogatja, a vállalkozókat különbözteti meg a gazdaság egyéb szereplőitől.
Steinmetz theorized that to survive, small businesses must move through four stages of growth Steinmetz envisioned each stage ending with a critical phase that must be dealt with before the company could enter the next stage
  • L Lawrence
Lawrence L. Steinmetz theorized that to survive, small businesses must move through four stages of growth. Steinmetz envisioned each stage ending with a critical phase that must be dealt with before the company could enter the next stage. § His stages and phases are as follows:
Scott focused on development of organizational complexity in a business as it evolves in its product-market relationships. They formulated three stages that a company moves through as it grows in overall size, number of products, and market coverage
  • Roland Christensen
C. Roland Christensen and Bruce R. Scott focused on development of organizational complexity in a business as it evolves in its product-market relationships. They formulated three stages that a company moves through as it grows in overall size, number of products, and market coverage: ‡
Factors Affecting the Growth of Manufacturing Firms
  • W Mcguire
†Joseph W. McGuire, Factors Affecting the Growth of Manufacturing Firms (Seattle: Bureau of Business Research, University of Washington, 1963).
A small business-if it is succeeding-is inescapably committed to living through three critical phases of growth. The only alternative to forced growth is the demise of the business and the probable loss of nearly 50 percent of the assets. The rewards of survival can be phenomenal. Phase I occurs in the direct supervision stage; Phase 2 in the supervised supervision stage; and Phase 3 in the indirect control stage, when the firm has ‘arrived’ at last. What can the small businessman do to ensure his progress through these stages and ease his own development from autocrat to professional manager? If he does not solve the problems encountered at each stage he can expect to go out of business. This article pinpoints these problems; recognition of them is the first step toward their solution.
The influence of history on an organization is a powerful but often overlooked force. Managers, in their haste to build companies, frequently fail to ask such critical developmental questions as, Where has our organization been? Where is it newt and What do the answers to these questions mean for where it is going? Instead, when confronted with problems, managers fix their gaze outward on the environment and toward the future, as if more precise market projections will provide the organization with a new identity. In this HER Classic, Larry Greiner identifies a series of developmental phases that companies tend to pass through as they grow. He distinguishes the phases by their dominant themes: creativity, direction, delegation, coordination, and collaboration. Each phase begins with a period of evolution, steady growth, and stability, and ends with a revolutionary period of organizational turmoil and change. The critical task for management in each revolutionary period is to find a new set of organizational practices that will become the basis for managing the next period of evolutionary growth. Those new practices eventually outlast their usefulness and lead to another period of revolution. Managers therefore experience the irony of seeing a major solution in one period become a major problem in a later period. Originally published in 1972, the article's argument and insights remain relevant to managers today. Accompanying the original article is a commentary by the author updating his earlier observations.