The Risks to Business Growth

Posted by:

Most owners want their business to grow. In fact many defend their desire by quoting the “grow or die” myth; the belief that a business has to grow in order to stay relevant. It’s not true. In fact, the opposite might be the case as the truth is, there are risks to business growth.

If you have a successful company – one that is consistently profitable – an aggressive growth strategy can kill it. By stating this, I’m not denying the benefits of smart business growth including increased profits, greater stability, improved value and more opportunities for employees. I’m saying that without careful planning the pursuit of growth can hurt a business in four key areas.

Customers: Can you still serve them as well as before?

A growing company makes mistakes. In fact during periods of growth the overall quality of service and products goes down before it improves. And in the day of 99.9% internet reliability, your customers will notice. Recently I was engaged as the Interim-CEO of a large service business. In eighteen months we increased sales by 50% while maintaining our better-than-industry-average net profit margins. During this period we also stretched our production and customer service personnel.

More customers meant more touches, more experiences, more opportunities to “shine or s _ _ _,” as I told our managers. Since today the customer is no longer “king” (able to set the rules) but “tyrant” (able to swiftly punish those who fail to meet their expectations) we reviewed our service standards, created reporting systems and determined how to quickly follow-up when we “missed” our high standards before we committed to grow. As a result, the advances we experienced in the first year carried over to the second.

Culture: Will you enjoy what your business will become?

A large company is different than a small one. Not better. Not worse. Just different. And when a company grows, its culture can change.

Several years ago I was engaged as the Chief Operating Officer (Interim) for a large independent financial firm. Despite its success, the practice had stopped growing, due largely to its structure and operations. During this period we re-assigned employees, developed new job descriptions, created new levels of accountability, improved performance standards; all the things you would expect. Because of our comprehensive approach we worked closely with the human resource director and found her to be both capable and caring.

It was that latter quality that kept getting in her way. In her mind, the relaxed “family feel” was being sacrificed at the altar of performance. She was right. Sort of. Although we set higher standards we continued to support employees, have fun and give personal touches. Still, the culture changed and she soon found another job. At a smaller company.

That’s a price – a risk – of growth. Fortunately, in this case, the cultural changes helped support a long, sustained period of growth.

Cash: Can you afford to grow?

It costs money to grow. In fact, before deciding whether or not your company is ready to grow you should first determine whether or not it can handle the financial strain growth can produce.

At times, I will bring in an outside accounting manager (CFO) to take control of the finances during the growth engagement. Working together we can manage cash, project revenues and expenses, improve the balance sheet and create forecasting tools that support the initiative. The right person and systems can help create the discipline needed to improve equipment, property, wages; everything needed to initiate and continue a strategy for growth.

With the right person in place as the CFO, we were able to move ahead with growth,

Competition: Are you ready for more?

When I was in high school (just after the one-room school houses) I played football. Since I lived in a small town, we played in a small town conference which meant that my small body was large enough to play offensive and defensive tackle. Back then I was skinny; enough so that in my uniform I looked a bit like Barney Fife (look him up … he was skinny) in pads. Had I been in college, I would have been a statistic.

Competing at the next level required more skill, more speed, more desire, more talent and more weight. It’s the same in business. As you grow the competition changes. Larger companies have more resources and if they see you as a threat they will use those resources against you. If you aren’t ready, you’ll get crushed.

Should I go ahead and decide to grow? That’s the question every owner should ask before committing to growing their company. It’s possible that by staying the size you are now you will continue to enjoy the lifestyle you’ve created and the profits you’ve come to expect. But if you choose to move ahead, to expand your business or practice, then be mindful of the risks to business growth.

Doing so can keep you from failing.

0
  Related Articles