The Four Stages of a Business

by Fred F. Richards, Jr.

Each business as it grows from an idea of an entrepreneur into a large and, hopefully, successful business undergoes a transformation of size, people, and character. Professor Herbert F. Stewart of the Harvard Business School often stated that businesses evolved from "half-baked schemes of the entrepreneurs into organizations that their founders would not recognize in most cases."

To assist the entrepreneur in understanding these stages the following has been prepared.

The Stages of business

Startup

i. Great ideas

ii. New Venture - formation

	Proprietorship
	Partnership
	"S" Corporation
	"C" Corporation
	Joint Venture
	Limited Liability Company

iii. Few customers

iv. High margins

v. Low competition (?)

vi. No debt

vii. Equity Financed

viii. Cash is King!

ix. Performance is based upon surplus cash generation

Growth

	Accepted Product or Service
	High prices with Product Launch
	High overall margins
	Growing demand
	Limited competition
	Loosely managed
	Poor capital management
	Requires cash for growth
	Almost always a corporation
	Equity and debt financed
	Performance is based upon sales growth!

Professional Structure

	Founder may no longer be with company
	Line & staff organization
	Formalization of policies and procedures take initiative from the informal working groups.
	Human resource departments begin to decide who gets hired.
	The corporate culture is favored over individual stars.
	Market share becomes under attack as competition mounts.
	Cost control programs and Quality Circles become fashionable
	Performance is based upon adherence to plan.

Mature

	Established product
	Volume stabilizes as growth slows.
	Acquisitions and divestitures are more important than research and development.
	High competition from both foreign and domestic arenas is seen.
	Low margins continue.
	Tight capital management and detailed budgeting restrict innovation.
	Debt financing becomes very important.
	Cash flow is seen by the CFO as more important than R&D expenditures for the future.
	Performance measurement is based upon economic returns on capital.

Last updated - December 10, 2001