An HBR article in May 1983 categorised the stages of growth experienced by small businesses. It also placed emphasis on the competencies essential for organisations to build sustainable and profitable businesses. This is inclusive of the founder/s’ leadership traits that plays a crucial role at every stage. The framework was researched and developed over 4 decades ago and remains relevant today, and will be so in the days to come.
The five stages generally addressed are Existence, Survival, Success, Take off and Resource mobility. The nomenclature each may vary however the growth characteristics remain universally applicable. Owner’s ability (mindset), alignment of founder(s) goals and ambitions with that of the business, business resources and capital, are critical levers for the businesses at each stage. Aside from these, – the people, systems & controls, efficient delegation of work and strategic planning, have also been appended with some importance. The intensity and relevance of these categories are subjective and fluctuate with each stage and business.
The framework corresponds with the start-to-scale journey of startups comprising of specific milestones – the idea to prototype stage, prototype to customer validation stage, customer validation to go-to-market stage and, go-to-market to scale-up stage. Developing an entrepreneurial mindset is the overarching factors relevant to achieving these milestones over a period of time. During the early stages of a startup, the founder(s) endeavor to develop a product/solution for which the customer is willing to pay and further refer to fellow prospective customers. The founder(s) energies and resources are focused upon ensuring the product is deemed market-fit, and on achieving the desired life time value of each customer. At this stage, the existence of the startup stands justified.
As the startup grows, the demand for the product/solution necessitates additional resources – people, capital, production resources etc. start gaining prominence. The focus of the founder(s) then shifts to managing and arranging resources namely – delegation, sales and marketing processes, negotiating with service providers, raising capital from investors, setting up production facilities, managing logistics, customer relationship management, identification of viable business models etc. The leadership style of the founder(s) also undergoes a major transition in the process. This stage is of utmost importance considering the mortality rate of startups is the highest here, wherein the founder(s) succumb to the odds. Incubators step in to play a critical role at this stage. They work towards reducing the probability of failure by providing timely support, guidance and mentorship to startups.
From the takeoff stage onwards, the startup transforms into an organization – with multiple stakeholders, guided by a competent board and management team, competent employees, company culture and ethics, professionally managed with systems and controls in place and, growing market share in the domestic and global markets. Corporate governance plays an important role as the organizations stand to gain a reputation or brand in the market, as many successful startups at scale are tapping the capital market to raise funds through the IPO route.
The timeframe for progression between various stages is often inconsistent for startups in different industries/sectors. For eg. in the case of healthcare startups, the gestation period would be slightly longer as compared to a fintech startups. However the requisite competencies for startups to progress from one stage to another remain unaltered. Depending on the exit strategy set by the core team, the environment often offers an opportunity to organizations to create conglomerates and become growth drivers for wealth creation.