Stage Right

The best-known business growth model is L.E. Greiner's five-stage model, first publicly described by him in a 1972 Harvard Business Review article. Greiner views growth as a series of changes forced by crises.

In Phase 1, called Growth Through Creativity, Greiner describes a Crisis of Leadership. At this stage, a youthful organization's founder must begin to delegate authority and accept nonfounder managers. Surviving the first crisis propels the organization into Phase 2, Growth Through Direction, where the crisis is one of autonomy. Phases 3, 4 and 5 describe growth through delegation, coordination and collaboration, respectively.

The main problem with Greiner's model from an entrepreneur's viewpoint is that it is designed for large organizations. Entrepreneurial stage-watchers prefer to use a model developed in 1983 by N.C. Churchill and V.L. Lewis, also published in the Harvard Business Review.

"This model specifically pays attention to small business," says Kelin Gersick, co-author of Generation to Generation: Life Cycles of the Family Business (Harvard Business School Press). "It's not just looking back at huge corporations and how they got there."

Churchill and Lewis base their model on Greiner's and, like him, describe five stages: existence, survival, success, takeoff and, finally, resource maturity. But they concentrate on the early, perilous days when problems of raising cash and delivering product threaten the company regularly. Their theory is aimed at high-growth companies with the idea that rapid expansion often creates a mismatch between a company's capabilities and its needs.

Other models focus on different issues. In 1990, E.G. Flamholz modeled the process of delegating authority in the book Growing Pains: How to Make the Transition From an Entrepreneurial to a Professionally Managed Firm (Jossey-Bass). Around the same time, R.K. Kazanjian identified problems specific to four stages: conception and development, commercialization, growth and stability.

Kazanjian says, for instance, that resource acquisition and technology development are critical at first, while internal controls are central to the final, stable stage.

The Churchill and Lewis model seems to work best for entrepreneurs. "The thing I like about that model is that they not only identify five stages but very clearly articulate the crises that accompany that growth," says Charles Matthews, director of the University of Cincinnati's Small Business Institute. Matthews also finds the model easy for entrepreneurs to grasp.

Matthews teaches students to use the model for analyzing other small businesses as well as running their own enterprises. It helps mainly by suggesting what problems are likely to arise and where action may be needed.

An early-stage entrepreneur who had studied Greiner's and Churchill and Lewis' models would not worry much about problems with internal controls and red tape. Instead, attention would focus on delivering product and raising cash because these are problems common to early stages. Indicators like this can make all the difference to a harried entrepreneur, Matthews says.

"Growing a business is one of the hardest things entrepreneurs do," Matthews says. "Things change, and you have scarce resources, including time. So any tool that helps you prioritize your commitments is valuable."

This article was originally published in the April 1997 print edition of Entrepreneur with the headline: Stage Right.