This is the start-up phase where a business determines what its core strengths and capabilities are and starts selling its initial products or services. It’s a hands-on phase for the owner, who is normally involved in every aspect of the day-to-day operations of the business. The business is typically nonbureaucratic, with no (or few) written rules or procedures. The main goal of the business is to get off to a good start and to try to gain momentum in the marketplace.

The primary challenges for a business in the introduction stage are to make sure the initial product or service is right and to start laying the groundwork for building a larger and busier organization. Don’t rush things. For instance, if you start a Web site to sell shoes, it’s normally best to make sure your approach to selling shoes works and resonates in the marketplace before adding handbags, sunglasses, and other items.

The primary challenges for a business in the introduction stage are to make sure the initial product or service is right and to start laying the groundwork for building a larger and busier organization.

In regard to laying the groundwork to build a larger organization, many businesses use the introduction stage to try different concepts to see what works and what doesn’t, recognizing that trial and error gets harder as the business grows. It’s good to document what works and start thinking about how the business’s success can be replicated when the owner isn’t present or when the business expands beyond its original location.

A business’s early growth stage is characterized by increasing sales and heightened complexity. The business is normally still focused on its initial product or service but is trying to increase its market share and might have related products in the works. The initial formation of policies and procedures takes place, and the process of running the business starts to consume more of the owner’s time and attention.

For a business to be successful in this stage, two things must take place. First, the owner of the business must start transitioning from his or her role as the hands-on-supervisor of every aspect of the business to a more managerial role. As articulated by Michael E. Gerber in his excellent book The E-Myth Revisited, the owner must start working “on the business” rather than “in the business.”^[1] The basic idea is that early in the life of the business, the owner is typically directly involved in building the product or delivering the service that the business provides. As the business moves into the early growth stage, the owner must let go of that role and spend more time learning how to manage and build the business. If the owner isn’t willing to make this transition or doesn’t know that it needs to be made, the business will never grow beyond the owner’s ability to directly supervise everything that takes place, and the business’s growth will eventually stall.

The second thing that must take place for a business to be successful in the early growth stage is that increased formalization must take place. The business has to start developing policies and procedures that tell employees how to run it when the owner or other top managers aren’t present. This is how a McDonald’s restaurant runs so well when it’s staffed by what appears to be a group of teenagers. The employees are simply following the policies and procedures that were originally written down by Ray Kroc, McDonald’s founder, and have been added to and improved over the years. An early growth stage business will not develop policies and procedures as elaborate as McDonald’s, but it must start formalizing how it achieves its success.

As a business moves beyond its early growth stage and its pace of growth accelerates, the need for structure and formalization increases. The resource requirements of the business are usually a major concern, along with the ability of the owner and manager to take the firm to the next level. Often, the business will start developing new products and services and will expand to new markets. Smaller firms may be acquired, and the business might start partnering with other firms.

The importance of developing policies and procedures increases during the continuous growth stage. A business also needs to develop a formal organizational structure and determine clear lines of delegation throughout the business. Although formalization is a term that is often frowned upon by business owners who want to free themselves from the trappings of Corporate America, well-developed policies and procedures lead to order, which typically makes the process of growing a business more organized, enjoyable, and successful.

The importance of developing policies and procedures increases during the continuous growth stage.