The 7 Stages of Business Growth
By Heather Wilde
The 7 Stages of Business Growth
Did you know that over 50% of businesses fail within the five years? And only a tiny fraction make it to 10 years (and beyond.)
Here’s a pretty alarming graph courtesy of the SBA, covering businesses ranging from the work-at-home solopreneur to garage-run tech startup, to the insurance agency and beyond:
No matter their sector, product, or service, every business on this chart had something in common — they were going through different parts of the life stages of a business.
The first is the “Seed” Stage, where you are gathering the initial capital and resources for your business. This is where you are researching if it is a good idea, finding mentorship, getting a lot of advice, and generally doing whatever you can to get ready to make things happen. Many businesses never even get past the Seed stage, as they are unable to properly execute on their idea.
Congratulations! You’ve executed on your idea, have incorporated your business legally and have a customer (or users). You might have a partner (or two) to help you get going, and you’ve got some money together to get off the ground. Things are still a bit shaky though. Many businesses in this stage don’t make it past the first 18 months, so you have a rough road ahead!
Awesome! You’ve got some traction, people really like what you’re doing. You are generating revenue — enough to hire some employees to help you! This is the time to experiment with new and exciting products and services. You have even noticed that there is some competition starting to rear up — how you react (or not) can be the determining factor in whether or not you reach…
Established Company Stage
Take a breath. You’re a company now. You have loyal customers, your growth is not explosive (and it may even slide some). Revenue numbers are manageable. Competitors will take this time to attack you, and try to weaken your position, but you will be able to withstand this, because you are now a household name.
Note: There is little to no innovation happening here. You will find that the people who rise here are Sales and Marketing types, and the Product types who served you in the Startup and Growth Stages will become bored and distant. Companies will often find that this is when they lose their earliest employees, and massive turnover in key positions (especially the C-Suite) to more established corporate hires is a sign that a company is about to head into…
You have now made it to a new period of growth, where you will expand into new markets and expanded distribution channels. At this stage, you have established yourself as a serious market contender, and you will make decisions that will bring you a larger market share. You will find new revenue and profit channels, with a carefully considered approach (vs the often frenetic energy of the Growth Stage.)
Mature Company Stage
This is another “plateau” period, where companies tend to get complacent — similar to the “Established Company Stage”, there is little to no innovation, and everything is “Status Quo.”
Each year you remain in this stage, your sales and revenues will be stable — there will be little desire to change anything, as everything is working.
This is where you are at your most vulnerable, however, as that competition that started to pop up when you became established is now even more fierce. Eventually, your sales will start to fall off, your revenues will take a downturn and you will need to make a decision whether to drop back to the Expansion Stage, or to move on to the…
Eventually, all businesses will exit (although some take much longer than others to reach that phase.) Many of the most successful companies will take a circuitous path, either remaining privately held or “going public” (sometimes both) before either being gobbled up into another, larger company or shuttering for good.
Bringing This Into Focus
Let’s take the case of Apple Computers. In 1975, Steve Wozniak created what would be the Apple I as a side project (Seed Stage) and in March of 1976, he teamed up with Ron Wayne and Steve Jobs to create “Apple Computers.” They got their first customer in May of 1976 (an order of 50 computers), and they delivered the order in June. Ron Wayne decided to leave the company soon after, but Jobs managed to pick up a VC, Marketing and PR firm to help them.
In January of 1977, the company was legally incorporated. (Startup Stage). They had found an investor — Mike Markkula — and another employee — Rod Holt — to help them get off the ground. They sold their first 300 computers by the summer of that year.
By the Summer of 1978, when Jeff Raskin (father of theMacintosh) joined Apple as Employee #31, they were already firmly cemented in their Growth Stage. In 1979, Jobs secured 7.3M (roughly $25M today) in funding for the company, including a $1M investment from Xerox. Bolstered by his great reception from investors, he took the company in December of 1980 to IPO to capitalize on this goodwill and help them grow.
(Interestingly, while the company was otherwise growing and flourishing, Jobs had turned his full attention to the Apple Lisa, which would be one of its most notable failures.)
In 1983, while the Macintosh and Lisa were still languishing in development, Apple released the Apple IIe. This became their most popular product, outpacing sales numbers of anything to date (and would for 10 years). This placed them in the Established Company Phase. In April of 1983 is when Jobs hired John Sculley (President of PepsiCo) to replace him as the CEO of Apple. In May 1983 Apple joined the Fortune 500.
However, things were afoot. While the vast percentage of the company’s revenue was being earned by the workhorse Apple IIe team, the Macintosh team got all the perks and higher paychecks. Employees who had been with the company forever got little to no stock in the IPO. Employees were often subject to belligerent, rude and inappropriate outbursts by Jobs that could leave them feeling publicly shamed.
Additionally, by 1984 the new product lines (the Macintosh and Lisa) were not selling as well as Jobs’ projections. New CEO Sculley was under pressure from his board to deal with the increasingly unhappy employees and their decreasing market share. To stem the tide and turn the company around, Jobs was asked to leave Apple.
While much maligned, the Jobs-less years at Apple (1984–1997) was a long period of Expansion. They expanded into the Business market, with their sales in 1986 were $1.9B and increasing in 1988 to $4.1B. Their chief competitor, Microsoft, started to incorporate things such as icons and “Windows” from the Macintosh operating system into their key software package.
Apple reorganized in 1988, creating four worldwide divisions. They were sued in 1989 by Xerox, and then unsuccessfully sued Microsoft in 1990. The company grew from 5500 employees in 1986 to over 14000 by the early 1990s. Unfortunately, due to poor decisions, stagnant product lines and increased innovation from competitors, their market share decreased from 20% to 8% by 1993. This resulted in John Sculley’s ouster.
His replacement CEOs didn’t do much to move the needle — at least in the positive direction. First, Michael Spindler went against Jobs’ wish to keep the Apple product lines closed and decided to license the products. This caused a brand dilution. Additionally, he underestimated the demand for the popular Power Mac, and did not produce enough, causing poor user sentiment.
Then, Gil Amelio came in to try to stem the bleeding. Unfortunately, while he managed to cut operating costs and payroll by a third, he was unable to keep the losses of the business from increasing. They were at $1B by 1997. The stock was trading at $14 a share (from its height of more than $70). Apple now had 4% market share. However, Amelio was a huge fan of Apple, and of Steve Jobs. As part of his tenure, he purchased Jobs’ company, NeXT Computers, and named him his special advisor to the company. When Amelio was let go in July 1997, the board voted Jobs back in as interim CEO.
It is at this point that I would say that this is when Apple first entered the Mature Company Stage. In 1998, they reached their first profitable year since 1995, and has remained profitable since. Since then, they have been able to expand, innovate, and stave off the competition. They have purchased many other companies, had some brief periods of stagnation, and have had some very public failures but nothing has truly affected their overall reputation for very long.
With Apple as one of the largest companies in the world, holding more in its ready cash reserves than the GDP of most countries, and generating more revenue in sales per quarter than its next three closest competitors combined, it isn’t likely they will be entering the Exit stage anytime soon. More likely, they will continue to jump between periods of Expansion and Maturity for many years to come.
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