It’s the moment you’ve been waiting for. Months or years of hard work, coming up with idea after idea, pitching to investors and carefully shepherding the best one along into a viable product that you can build a business around. You’ve been at it for a little while and the early returns are good — sales are up, customers are enthusiastic, and the market seems to be there for even more. This sounds like the perfect time to grow and do it quickly, but before you jump in feet first you need to stop and assess. Growing too quickly can be just as dangerous to your business as not growing at all.
What are the dangers of rapid growth and how do you avoid them? Here are a few of the most common, along with some steps you can take to avoid them.
1. Losing Track of Finances
As much as anything else, excessive growth has to do with your business outpacing your capacity to conceive of its size and scale. Brian Hamilton, chairman of the financial information company, Sageworks, puts it this way, “When your business is smaller, you probably have a pretty good command of your numbers. You’re able to watch your cash and know quickly how expenses are stacking up to sales. But once you get to a certain sales range, above $5 million or so, it’s very hard to keep track of your financials in your head.”
Keeping track of your budget and understanding your cash flow is key to making sure you don’t make a mistake you can’t come back from. Brian suggests making sure you consult your accountant more often than just during tax season. They’ll be able to look at all the data available and tell you what the actual situation is, and they’ll also have data about other companies like yours to help you understand the context of your decisions.
2. Cash Flow Mistakes
Cash flow mistakes are incredibly common, and a big reason why many small businesses fail. Whether it’s overly-optimistic growth projections, or the failure to understand the difference between profit (which is an accounting number that happens after the fact) and actual cash on hand, a slip up here can mean big trouble for your business.
As you grow, it can be easy to get to a place where your monthly expenses exceed your operating credit. That’s fine as long as money keeps coming in the door, but if you aren’t careful, you could be one bad month away from being sunk if you don’t plan accordingly.
3. Overvaluing Sales
There can be a mentality that if you take care of sales then everything else will follow, but those numbers aren’t the end-all be-all you think they are. This is an especially key insight when you make financial decisions: revenue is a useful metric, but you need to use all the information you have at your disposal. It’s important to build your business, but make sure that the decision to grow is based on a solid financial evaluation, including market studies, economic analyses, and all the other data that’s out there. As Hamilton puts it, “It’s much harder to grow well than it is to just grow.”
4. Ineffective Business Operations
Getting bigger means that you need to get more organized. Working fast and loose may have been fine for your small team of superstars, but it won’t work as well with a bigger group. As your ranks grow and positions that were filled by individuals transform into teams of people, the need to stay organized becomes amplified.
A lot of this comes down to access to information: cost estimates, budgets, cash flow, sales, inventory, etc. Making sure that everyone in your company works together as a team around the core principals that have made you successful so far is key, and that means getting organized.
5. Hiring The Wrong People
The balance you are able to create within your small team of great people is part of the magic behind how an excellent startup happens. However, as you grow, it becomes difficult to keep hiring people who check every box while also filling your needs as quickly as possible. If you’re in growth mode, you’re rushing to generate revenue you can use to pay back the loans you’ve received to help the company build. You need people with specific skills, and you need them now, but at the same time, you need to make sure that you know where you’re willing to compromise, and where you aren’t.
6. Not Scaling Customer Service
Just like with sales, you need to keep up with the increased demand for customer service as your business grows. A lot of smaller businesses build their reputation on excellent, personal customer service that is more than willing to go the extra mile to convert a customer into an advocate.
With rapid growth, however, it can be difficult to live up to your stellar reputation, and there aren’t metrics like sales numbers to let you know how you’re doing. Make sure that as you grow you pay attention to your customer service, and have clear standards that put you in a position to succeed.
7. Management Mistakes
As your business grows, you need to be able to step back and look at bigger picture. Too many founders get wrapped up in the tiny day-to-day details (which balloon outward as you get bigger) and don’t focus in on the essential business functions. Don’t become a micromanager. At the same time, be careful not to become divorced from the daily reality of your business, because this disconnect is also dangerous.
8. Scaling Technology to Business Need
Technology and connectivity both play key roles in the growth of businesses. Your business needs to have the right tools in place to ensure all systems are running efficiently and effectively. Businesses these days need solutions that range anywhere from internet and storage solutions to voice over IP and cloud-based applications. The technological requirements of a business vary greatly based on size, goals, and structure of a company. You’ll need to have a clear vision of what your business needs before scaling it forward, both in terms of functionality and cost. There are risks in both too little, and too much.
If you’re unsure where to start, consider hiring an internal IT employee that can help put the right technological processes in place. If you aren’t quite ready to hire internally for that position, a managed service provider can be a very useful partner to lead you in the right direction.
What You Can Do Right Now
Business growth is exciting, but you’re not out of the woods yet. Growth can be dangerous for your company if you don’t go about it the right way. Don’t lose track of your finances, and make sure that things like customer service, technology and business operations are built to scale. Here’s what you can do right now to help:
- Get help keeping track of your finances, and look at more figures than just sales to make decisions.
- Build your business to scale, so business operations, technology, customer service, and human resources grow at the same pace to meet the growing demands of the business.
- Don’t get bogged down in micromanaging when you need to keep your focus on the big picture.
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