A recent guest article post on Next Billion features a CIPE, CARE and William Davidson Institute program on SME growth program in Algeria.
Seven Stages of SME Growth – One Common Problem: The Challenge of Financing Small Businesses Across Their Life Cycle
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 startups 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: 1) Existence, 2) Survival, 3) Success, 4) Take-off, and 5) Maturity. But though this framework has provided a valuable basis for understanding business growth, a recent project that I have been working on with the William Davidson Institute* and other partners has forced me to revisit the SME life cycle. The project involves SME growth and financing options in Algeria. Through it, I’ve learned that the startup revolution of the 21st Century has expanded the number of SME growth stages. In my opinion, there are now seven stages, including a pre-stage, which are discussed below.