People are what separate businesses that scale from those that stall.
The Harvard Business Review’s five stages of small business growth offer business leaders a practical roadmap for growth by highlighting the challenges and managerial priorities at each phase. Stage one is all about finding product market fit and generating initial revenue. At stage two, you work to establish a repeatable revenue stream. Stage three introduces a fork in the road — a choice between:
- Maintaining stability (AKA: plateau)
- Pursuing growth
At this stage, the quality and diversity of your people become a deciding factor. As systems, delegation, and leadership pipelines begin to develop, your team’s performance determines whether your business can scale or risks stagnation.
For CEOs of small businesses — particularly those in software startups or professional services — HR is often considered only once the organization faces growing pains. However, effective HR is not just a support function. It’s a growth accelerator that, when tailored to each stage of your company’s journey, catapults your business forward.
In this article, we explore the five stages of small business growth as defined by the Harvard Business Review, detailing how your HR strategies should evolve to propel your business to the next level.
Stage 1: Existence
At stage one, the focus for leaders is on figuring out how to make money. You want to validate your business model without the weight of excessive HR processes.
HR goal at stage one: Lay the foundation
You know you don’t have the money for a large team at this stage. Hire only for the most critical and biggest impact roles. The ideal candidates will be multi-skilled, versatile, and have a high tolerance for ambiguity.
While HR may seem like an afterthought right now, there are some important things to take care of to avoid problems further down the line. You’ll want to set up:
- Employee contracts. Provide clear contracts outlining job roles, pay, benefits, and confidentiality. Include termination conditions and legal compliance clauses.
- Payroll compliance. Follow payroll laws for deductions, taxes, and timely payments. Ensure compliance with minimum wage and overtime rules.
- Basic health and safety. Establish a safe work environment, even if your team is remote, and follow essential health guidelines. For instance, offer guides on workspace setup, covering topics like proper lighting, desk height, and screen positioning.
- Record-keeping. Start a basic record-keeping system. Store employee contact information and any legal documents related to employment.
Stage 2: Survival
By stage two, you’re working to establish a repeatable revenue stream. As your operations expand, it’s time to take a more consistent approach to team management.
HR goal at stage two: Implement basic performance management to stabilize critical roles
Start providing structured feedback to your team. Set up quarterly or monthly one-on-ones to set and review goals. Outlining expectations and regularly discussing performance helps increase accountability and productivity to support revenue growth.
Early recognition in an employee’s career at a company makes them twice as likely to feel inspired at work. And inspired employees are 2x more likely to stay at their jobs for the next 12 months — which is crucial when you want to keep your small team intact.
Though formal recognition with incentive programs might not be feasible right now, create an encouraging environment to keep your team engaged. Acknowledge successes publicly and celebrate milestones, for instance, by posting in Slack or sharing wins in a weekly team update.
Stage 3: Success – It’s Time To Choose Plateau Or Growth
Companies that reach level three are no longer struggling to survive. A lot of them think: well, we got here successfully. Why can’t we just keep growing?
Welcome to the tipping point.
It’s at this point that companies need different resources to continue to grow. At stage three, previously essential resources like an initial cash injection and the owner’s ‘ability to do’ become less critical. Meanwhile, strategic planning, the owner’s ability to delegate, and the quality and diversity of your team grow in importance.
Here, companies who continue operating in the same way as level two are often successful in that they make money and business is viable. They may technically still be in growth because initial growth hasn’t slowed down yet. However, without the right tools these companies plateau.
Companies that want to continue growing need to chase better performance — for that, they need a people strategy. Our average client is companies of 29 people because that’s when leaders typically realize they need strategic HR input to grow to the next level.
HR goal at stage three (if you want to grow): Attract, onboard, and retain high performers
Hire and retain exceptional talent
Competitive compensation, growth opportunities, and a strong workplace culture are central to employer attractiveness — the perceived benefits that make an organization an appealing place to work. They’re what draw top talent. Plus, research shows that employer attractiveness significantly impacts employee performance.
To bring in high achievers, establish clear, competitive salary bands and transparent bonus structures. You’ll also want to show existing and potential employees that they have growth opportunities at your company.
Learn more about how to hire exceptional talent without wasting time.
Gartner research found that only 46% of employees are satisfied with their career development. Employees expect to grow faster than they do in reality, and when their expectations aren’t met, they’re more likely to pursue jobs elsewhere.
To retain your top performers, implement professional development programs with training, mentorship, and access to industry events. Keep your team engaged by offering them opportunities to advance within the organization.
Develop onboarding excellence
A stellar onboarding experience is important for retention — 70% of new hires decide whether a job is right for them during the first month. 29% decide during the first week.
Yet, according to Gallup, one in five employees reported that onboarding was poor or nonexistent. Set up new employees for success with a comprehensive, phased onboarding process that introduces new hires to company culture, role expectations, and performance metrics. Pair new employees with seasoned mentors or buddies to help them acclimate faster and foster early connections.
Additionally, you’ll want to upgrade your recognition programs and compliance as you grow.
If you’re looking to level up your HR practices so you can level up your company, book a call with Castle HR.
Stage 4: Take-Off
At stage four, you’re in full expansion mode. While rapid scaling is exciting, it comes with growing pains: it strains teams, and the risk of losing your core values and talent rises.
HR goal at stage four: Retain high-performance people and culture, maintain/improve productivity, and mitigate risks
Employee engagement is critical, with Gallup research showing that engaged teams see a 23% boost in profitability and a 10% increase in customer loyalty. Transition to structured, data-driven performance management using formal reviews, consistent metrics, and clear development paths.
Studies show a 10% productivity increase among employees who improve their health through wellness initiatives. So, invest in wellness programs to prevent burnout and maintain morale.
To manage risks, formalize compliance with labor laws, especially when expanding to new regions, and implement robust workplace safety protocols.
Stage 5: Resource Maturity
At stage five, you have a mature organization — but that doesn’t mean it’s time to sit back.
HR goal at stage five: Drive long-term stability and strategic growth
Maintain a strong leadership pipeline by identifying and developing future leaders and doing succession planning. To encourage innovation and adaptability, build a continuous learning culture. Make sure you offer ongoing training and access to industry events.
Employee advocacy improves your brand reputation, which helps you to attract talent and boosts morale. To foster that advocacy, recognize employee contributions with formal recognition programs that celebrate milestones and career achievements.
People are your growth engine
A team’s talent, passion, and performance are what transform potential into growth. To help you find and keep that stellar team, book a call with Castle HR today.
