Growing a Small Business - 6 Key Considerations

What is the most common reason for a small business to fail?

According to the Office for National Statistics, 11% of UK businesses fail each year. 

The most common causes for business failure can be summarised as either one, or a combination, of the below.

• An ill-defined, or non-existent, business plan.
• Running out of funding, or poor management of cash.
• Lack of product market fit and insufficient sales demand.
• Growing too fast and relying on business loans and credit to scale.
• A lack of quality customer service and poor business reputation.
• The owners were overwhelmed with administrative tasks instead of hiring or outsourcing.

Understanding the stage of growth your business is in can help you identify and manage these challenges.

What are the five stages of small business growth?

In a classic Harvard Business Review article, Churchill and Lewis outline five stages of growth each small company will pass through. Understanding which of the below stages you are at will help you manage cash and market activities.

5 stages of business growth

1. Existence
2. Survival
3. Success
4. Take-off
5. Maturity

In the existence stage, you are likely a single owner or small team juggling everything from marketing to finance and operations. In this stage, your resources are stretched and there is limited specialisation within the team. In order to get to the next stage you need to find customers and show an ability to deliver.

As the business establishes a proven market and customer base, it moves to the survival stage. Here you need to manage cash carefully by balancing revenue and expenses. Can you break even and generate profits?

In stages 1 and 2, the owner is the business with decisions and execution flowing through them. In the success stage, the business is now in good economic health. The business owner will then consider whether to be actively involved in growth strategy—or disengage and delegate to new managers. Here, you may begin to appoint functional managers to lead key areas.

In the take-off stage, operational and strategic planning is essential to growth. The business should now look to coordinate how to continue growing profitably—and manage risk and debt appropriate to growth requirements.

Once the successful business reaches resource maturity, management processes will be firmly established. The owner will begin to separate from daily operations.  If you can retain an entrepreneurial spirit, business success can continue for many more years. If not, there is risk of ossification in which growth slows, innovation decays and the company culture takes less risks.

Short term vs long term growth tactics

Depending on your current situation, you will need to consider how long it will take to see results and how to approach growth.

You can focus on short term tactics to drive immediate sales or long term growth that sustains. If you want to transition from startup to maturity, you will need to do both. Many firms in the existence stage focus exclusively on short term performance marketing to drive fast, but costly, growth.

Short term tactics

• Pay per click advertising (Google/Bing Ads)
• Outreach and cold calling
• Events
• Promotions and discounting
• Outsourcing to agencies and freelancers

Long term tactics

• Branding
• Content marketing
• Search Engine Optimisation
• Systems and processes to increase scalability
• Hiring employees and delegating

Ideally, you would have the resources to do both but that’s not realistic for most small enterprises. Juggling each approach can compromise both the budget and time you have available.

Be careful that you don’t over emphasise short term tactics like sales promotions. This could create a trap where you need to constantly cut costs to attract business. 

Similarly, over reliance on brand building that doesn’t lead to sales can be damaging if you cannot pay immediate bills.

The scholars Binet & Field argue that companies should dedicate 60% of resources to long term brand building and 40% to short term tactics. This will lead to a balanced and sustaining growth.

Should your company focus on new customers or existing ones?

There are two schools of thought on whether to focus on customer acquisition or customer retention.

The retention school argues that it is more costly to find new clients. Instead, you should focus on retaining existing business with loyal customers. This will reduce selling costs and increase customer lifetime value.

By retaining clients you create ongoing streams of income and predictability. You also have a marketing channel available to you in the form of testimonials and referrals.

The acquisition school claims that loyalty will not sustain you. Instead, there is a wider pool of potential customers to attract. This also protects you against economic changes through diversification. 

Customer concentration is a risk. If over half of your revenue is from one customer, what would you do if they switched to a competitor?

Time vs money vs expertise

All marketing tactics could work for you, but are dependent on context. The degree of success each will have on your company depends on factors in and outside your control.

External factors, like regulation or high levels of competition, may make it harder to find new customers. Internally, you may not have the skills or expertise to succeed with a particular marketing channel.

If you think a marketing activity could work for you, then consider whether you have the time, money or expertise needed.

• If you have time and money, but no expertise, you can invest in learning or hire an expert. This could be short courses in new software or social media platforms to improve your capabilities. Or you could sign a marketing agency on retainer that has the knowledge to get you started.
• If you have time and expertise, but no money, you can hit the ground running and do the work and bootstrap your business. Be mindful that you also need to allocate time for sales, finance and service delivery. This can be exhausting and overworked owners are a common cause of business failure.
• If you have money and expertise, but no time, you can outsource the work you need doing. Again, this could be a marketing agency, or it could be hiring a marketing team to deliver on your vision.

Another way of considering this is the good-fast-cheap conundrum. You can have two at most but never all three. 

Even if you are looking for low cost business growth plans, I should emphasise that you always pay in some way. You may save money by doing everything yourself. You may also introduce opportunity costs that take you away from other activities. 

If it is more profitable to outsource work that frees you up, it is always better to outsource. Think about the time/money/expertise needed and focus on the area(s) that will have the biggest impact for your situation.

Hiring employees to nurture business growth and development

Recruitment should be the main priority of any small business owner wanting to grow. 

After a period, you will find that you need to bring more skills in house. This is not only vital for expansion but also for your own mental health. You cannot juggle management responsibilities on your own.

While outsourcing may have helped in the early growth stages, you should encourage employee ownership of key activities. This could include areas of finance, marketing, HR and operations that require internal collaboration or confidentiality.

Finding and attracting employees can be challenging. You will need to weigh up whether to pay higher salaries for experienced talent or whether you have the time or budget to train junior staff. 

Key employees essential to early growth

It is worth finding an exceptional HR Manager early. They can help you with the hiring process, build a talent development strategy and liaise with external recruiters. Employee engagement is vital. You need to retain talent.

Maintaining healthy cash flow is essential at all stages of business growth. Hiring a  Finance Manager can be vital for business planning and allocating resources to the right place.

You need to generate demand for your products or services. To do this, you need to hire a Marketing Manager versed in demand generation. Ideally, you should hire someone with experience or training in marketing strategy. It is not enough to hire a young intern and leave them to manage your social media accounts. You need someone that understands buyer psychology, copywriting and positioning to draw a steady supply of leads.

In the early stages of growth, converting leads to customers should be the priority of the founder. Once you have established demand for your product and service, it is time to hire a Sales Manager to grow in our target market.

An excellent Operations Manager can be invaluable for rapid growth. Your Ops Manager should be creating playbooks and automation systems to standardise repetitive processes. This then feeds future growth and scalability as you can efficiently train employees and improve processes.

Strategic planning is key to a successful business model

To develop a growth strategy that will sustain, you need to consider the reasons most businesses fail—and actively avoid the common pitfalls leading to failure.

The most common causes of failure are a lack of planning and inadequate management of resources. 

Spend some time thinking through your current situation. 

• What stage of growth are you in?
• Do you have the internal expertise to move to the next stage?
• Are you able to invest in long term marketing and brand building? Or do you need sales fast?
• Are you taking on too much as the owner of the business? 
• What is your hiring or outsourcing plan?

After reflecting on these questions, you will have a greater understanding of your current business strengths and limitations. 

You can now actively plan to address those weaknesses and build on your advantages. This could be hiring new employees or pivoting to a new marketing strategy. 

Go bold and grow further.