There’s an endless variety of small and medium-sized enterprises (SMEs) in the world, varying widely in size and capacity for growth, and facing a vast array of different challenges and opportunities. So it might seem impossible to categorize the problems and growth patterns these SMEs face in a systematic way that is useful to entrepreneurs and small business owners. However, these businesses often experience similar problems that arise at similar stages in their development. These points of similarity can be organized into a framework that increases our understanding of the nature, characteristics and problems of SMEs – from those with just one or two employees, to the fast-growing tech start-ups of today.
In the 1980s and 1990s, a widely accepted framework emerged, summarized in a Harvard Business Review piece from May 1983. The article confirmed that SMEs grow in five stages, and that every stage of business development has its own set of unique characteristics, including challenges and milestones. These growth stages included:
- Take-off, and
But though this framework has provided a valuable basis for understanding business growth, MEFBA experiences whilst working on with different communities for SME enterprise development and management has forced to revisit the SME life cycle. Through it, MEFBA has learned that the startup revolution of the 21st Century has expanded the number of SME growth stages which can be smartly replicated and put to use for its own understanding of the SME life cycle dynamics. In MEFBA’s opinion, there are now seven stages, including a pre-stage, which are discussed below.
THE SEVEN MEFBA STAGES OF SME GROWTH
Stage 0 – Idea: People in this stage have an idea (maybe even a great idea), and want to start a business – but they haven’t committed to becoming entrepreneurs or small business owners. They are still researching their service or product and potential customers.
Stage 1 – Development: The development stage is all about market validation, ensuring that their product or service has an existing market, and actually solves the problem identified in the Idea stage. This is where proof of concept and prototyping come in to test the market.
Stage 2 – Launch: In this stage, entrepreneurs and SMEs have decided to start a business and are actively building their market and refining their product or service. They might not have many (or any) customers, but they’re no longer sitting on the fence about starting a business.
Stage 3 – Survival: Entrepreneurs and SMEs in this stage have a business plan and are growing their revenue streams with new clients and customers. They aren’t booked solid or running at full capacity yet, but there’s no longer a question that they have a viable business model.
Stage 4 – Growth or Success: This is the stage in which SMEs are working at full steam, but the demand for their goods and services outstrips their ability to meet it. Something has to give, but business owners often don’t want to let go of the business activities that have gotten them to this stage. At this point, they have to delegate responsibilities and begin to separate from the day-to-day management of the company.
Stage 5 – Expansion or Take-off: Entrepreneurs/SMEs have figured out what caused inefficiencies at Stage 4, have fixed it, and are now running effectively with rapid growth. They have the team, financing and support they need in order to focus on their core competencies – or if they don’t, they have a specific plan in place to secure those resources.
Stage 6 – Maturity and/or Scaling: SMEs that reach maturity often find that business levels off and may even slow down. For most businesses this is normal and to be expected. Other businesses will choose to expand further, after they have matured in one market. They will attempt to replicate their success, or scale their business into other markets, either domestically or internationally.