The 5 Stages of Business Growth

The 5 Stages of Business Growth

Crises of growth can occur at almost every stage of a startup's development, from the development of an idea to the much more mature stages. At the same time, a company may experience several crises at the same stage.

Back in 1972, Larry Greiner identified five phases of growth and the crises associated with each. Today Greiner's methodology is relevant both for small startups and for businesses that are launching new divisions or internal business processes.

Stage 1. Growth through creativity.

When a startup is still young, it is in search of the optimal business model and is actively testing hypotheses, and some changes are constantly being made to the organizational structure. However, it is far from certain that these innovations will work the way the founders expect.

At this point, employees feel particularly vulnerable. They often find it difficult to see their role in the company and where it is headed. According to Gallup, about 50% of staff leave the startup already at this stage.

This is how a leadership crisis arises. For most organizations, the easiest way out of the predicament is to change their management style and introduce staff responsible for management. However, this stage is not accidentally called growth through creativity: in the early stages, you can come to the right management decisions by generating non-standard ideas.

For example, at Refin we focused at the very beginning on studying the audience and testing channels of communication with users. We did not spend resources on an online platform, website or interface layouts.

Thanks to this we were able to quickly and efficiently test hypotheses and build a sketch of business processes with a small team. At the same time we almost completely distributed managerial responsibilities between the three founders, each of whom was responsible for his area of work.

The leaders promptly delivered feedback to the rank-and-file employees so that they had a clear understanding that they were not walking through different areas of uncertainty alone, but were being guided and supported by their leaders.

Stage 2. Growth through management

After the first crisis, the startup continues to scale. In this stage, middle managers emerge most often to relieve the founders and take on the responsibility of controlling and efficiently allocating resources.

However, there comes a point when there are so many processes that even a few people lack the time and resources to manage them. This is called a crisis of autonomy.

In this situation, there is a risk of hiring too many managers and bloating the payroll. The alternative is to give employees more authority. This requires adjustments in the organizational structure and redistribution of responsibilities.

So, at Refin, instead of hiring mid-level managers, we decided to give our employees a chance to try out a new role.

The first managers were team members, who together with us built business processes from scratch. Such employees were more loyal, they knew the company inside out, and thanks to that they quickly grasped the essence of managerial work.

By the way, we kept this practice during further scaling up. Now we have employees who in just 14 months have gone from start-up to a high managerial position. Their examples inspire others and show that anyone can become a leader in our startup concept: everything depends on his or her persistence and talent.

Betting on our own people also helped us optimize the payroll - with the existing managers among the current employees, we only needed to hire people to perform certain functions. Already at this stage we introduced regular management: meetings, daily monitoring of indicators at each stage, and systematic work on the growth of indicators.

Stage 3. Growth through Delegation

When middle managers can respond quickly to new challenges, the startup continues to grow. Meanwhile, top management monitors processes and gets involved only when major issues (e.g., new partnerships) are addressed.

A crisis of control may arise here: in some cases, management does not always agree with the decisions of employees. In this case, a more transparent head office structure is required, as well as the introduction of standards, rules and reporting.

At this stage, we at Refin rebuilt the head office management structure. Instead of a complex system with three founders, we built a more clear structure with the CEO and the CEO. We also had top managers who took some of the burden off the management on business development.

In addition, we have built a clear system of work and interaction between departments, as well as prescribed functions and standards. As a result, the number of situations in which the positions of management and managers differed was minimized

Stage 4. Growth through coordination and monitoring

In the next stage the startup usually already manages to attract investments. The company introduces clear strategic planning, and the management model combines products and services into units.

At this point, a so-called red tape crisis can arise - when the overall innovativeness is reduced due to the documented nature of the actions, and the flexibility and speed of decision-making deteriorate.

Now we at Refin have just moved to this stage and are already taking a number of actions to reduce the negative effects of red tape. For example, we give top managers more freedom of action, and we set tasks in the format of projects with specific goals, resources and deadlines.

We pay a lot of attention to work with the personnel, cultural code and onboarding. We supplemented regular management in the form of plan-facts and weekly meetings with stand-ups, team gatherings, and presentations. At these, the founders talk about what we have already achieved and where the company is heading. This ensures that the corporate goals, values, and rules are communicated to all employees, and increases their involvement in the processes.

Stage 5. Growth through Cooperation.

At this stage, the processes in the company are usually already well established. At the same time it may seem at some moment that internal resources for further development are not enough, and the growth is possible only through cooperation with external partners. However, new opportunities for scaling can be found not only on the side.

For example, we have launched a process of internal entrepreneurship. We want everyone to have the opportunity to launch projects within the company and build a management system independently in their product divisions.

Each of these projects can give an extra boost to Refin's development and attract new partners and investors. We've already received several applications with fresh ideas from our employees, and we're now looking at how we can integrate them with our business objectives.

How to get the most

During the startup phase of a company, the management structure is not yet lined up, and employees often have to work in a stressful and chaotic environment. In order to retain staff as well as effectively organize work processes, you can, for example, temporarily give up managers and concentrate all management in the hands of the founders.

When a startup scales rapidly, the volume of tasks and processes that need to be controlled grows. At the same time, hiring additional managers can inflate the payroll. Giving management authority to employees from junior departments may be a solution.

In order to avoid a lot of disagreement with managers, you need to build both the reporting system and the way you hire employees for management positions. When these positions are filled by specialists with experience, junior managers grow faster. Betting on in-house personnel, who tend to be more loyal to the company, also helps reduce the number of potential conflicts.
To reduce the negative impact from a record of actions, pay attention to the corporate culture and employee involvement in work processes and company development issues.

When it seems that internal resources for development have been exhausted, reach out to your employees. It is quite possible that some of them are already dreaming of launching their own startup within your company. Working together can provide new opportunities for mutually beneficial growth.