Larry had a nice business and made a good living. His employees appreciated their jobs and enjoyed working with him.
Then one day a proposal arrived from a potential customer that made his mouth water. If he got this job, it could triple his business in the next 18 months.
Larry did get the contract and along the way learned five important lessons about fast growth.
Lesson 1: Fast growth creates debt
To his credit, Larry ran the numbers; he knew how many machines he’d need and how many man-hours would be required to ship on time. What he hadn’t taken into consideration were breakdowns, unskilled employees, additional support equipment, the cost of purchasing material, and extra overhead costs. Larry thought he had enough cash on hand to work through the phase-in, but he was wrong. It wasn’t long before he was taking on debt. Even though he had plenty of money coming in, he owed more and had a difficult time paying all his bills.
Lesson 2: Fast growth can create unhappy customers
Before he got on the growth treadmill, Larry had been providing a great product and exceptional customer service – which is what attracted the prospective customer in the first place. He had an impressive reputation. With a manageable number of clients, he had been able to give each one the personal attention that made his company special.
The bigger his business got the less time Larry had to interact with his clients. He failed to manage customers’ expectations. Some even started to cancel orders.
Lesson 3: Growing too fast makes you forget your original goal
Larry had started his own business because he disliked working for big companies. He wanted to operate with the vision of respecting and valuing employees and customers.
The lure of new opportunities and the prospect of big contracts enticed him, he turned his back on the values and the client base that had made him successful in the first place.
Lesson 4: Fast growth can drive good employees away
When Larry accepted the new contract, it significantly increased the demands on his employees. Every job was a rush and seemed to carry its own set of problems. Lines of communication broke down and Larry was so preoccupied with details that he missed the warning signs.
He had experienced, long-term employees but they weren’t trained for leadership positions. They were overwhelmed by their new responsibilities. Some of his best left and Larry lost institutional memory, customers, and money.
Lesson 5: Fast growth makes you focus on the short term
When Larry was in the middle of his growth spurt, he felt amazing. Cash was rolling in, his Profit & Loss statements looked impressive. Worrying about paying bills and managing expenses and operating costs seemed a thing of the past.
But Larry had stepped into a dangerous trap. He was only looking at short-term profits instead of considering what needed to be done to sustain long-term growth. He burned through his cash reserves and maxed out his line of credit thinking the good days would never end. Unfortunately, they did.
Small businesses need growth to succeed. However, growth is complex, it requires keeping your eye on your systems, your staff, and your cash reserves. Successful growth requires taking time to plan and prepare to sustain all three areas as your business increases.
Good luck and smart growth.
The road is easier together,
Linda Laitala, President
Raven Performance Group