The 3 Phases of Business Evolution According to the STARS Framework



I would like to see anyone, prophet, king or God, convince a thousand cats to do the same thing at the same time.” — Neil Gaiman

You can’t figure out where to take a new organization if you do not understand where it has been and how it got to where it is.

To improve your personal effectiveness on the job, learn how to assess the state of an organization.

In The First 90 Days: Critical Success Strategies for New Leaders at All Levels, Michael Watkins shares the STARS model of business evolution for analyzing your business.

The Stars Model

The key point is that businesses (and, for that matter, projects, processes, products, and plans) tend to move predictably from one type of situation to another.

Growth Cycle

Start-ups are naturally in a growth cycle.  Mature businesses may also enter growth cycles through internal startups to create new products and services.

Watkins writes:

“Successful start-ups grow and eventually become sustaining-success situations. Often the individuals who managed the start-up move on to tackle new start-ups, and managers more experienced at running larger businesses take over.

Theses successful businesses may in turn give birth to internal start-ups as they diversify into new products, services, processes, or technologies. In this way, healthy companies enter a growth cycle.”

Recovery Cycle

A recovery cycle is when you are realigning a business to it’s sustaining-success state.

Watkins writes:

“But entropy increases. Successful businesses tend, because of internal complacency or external challenges or both, to drift toward trouble. Even if the organization is not yet in crisis, acute observers see gathering storm clouds that signal a need for realignment.

Realigning an organization usually means redirecting its resources, such as by abandoning aging product lines and developing new technologies. It often means changing the organization’s strategy, structure, skills, and even its culture in fundamental ways.

Realigning the business returns it to a sustaining-success state, designated in the model as the recovery cycle.”

Crisis Cycle

If the business fails to realign, it can end up in a turnaround situation.

In a crisis cycle, you cut the business down to a defendable core and then begin to build it back up.  The goal is to get the business back to a sustaining success situation.

Watkins writes:

“If efforts to realign the business fail, it can end as a full-scale turnaround. This happens when prior leaders failed to see the need for realignment. (After all, businesses rarely go directly from sustaining success to turnaround.)

No matter why this happened, there is rarely argument about the need to make big changes fast, if the situation is dire, the business is losing money, and its best talent is jumping ship.

Turning around a failing business requires the new leader to cut it down to a defendable core fast and then begin to build it back up. This painful process, if successful, leaves the business in a sustaining success situation, as illustrated by the crisis cycle. If efforts to turn around the business fail, the result is shutdown or divestiture.”

Key Take Aways

Here are my key take aways:

  • Know the three cycles: Growth Cycle, Recovery Cycle, and Crisis Cycle.
  • Know the four situations: Start-up, Turnaround, Realignment, and Sustaining-success.
  • Use this model to figure out the history of your business and where to take it.

The better you get at reading the landscape, the more effective you get at leveraging the system that you are in, and applying your effort in ways that make the most impact.