Larry never saw it coming. He ran 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. He’d been chasing this customer for months, trying to get a
chance to bid. If he got this job it could triple his business in the next 18 months. Larry saw dollar signs; he desperately wanted to get this work.
Larry did get the contract and along the way learned five important lessons about growing too fast.
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 was 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. More orders meant more debt and a vicious cycle began. 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.
It was inevitable that the bigger his business got the less time Larry had to interact with his clients. He was so busy handling the myriad of duties required to grow his business that he failed to manage customer’s expectations. Some felt so put-out they started pulling their work.
Lesson 3: Growing too fast makes you forget your original goal
Larry started his own business because he disliked working for big companies. He wanted to own a business that ran according to his principles, treated people with respect and one that he could be proud to own.
The lure of new opportunities and the prospect of big contracts though, was too hard to resist. While Larry was working hard to put all the pieces together and satisfy new contract requirements, he turned his back on the duties and the client base that had made him successful in the first place.
Lesson 4: Growing too fast can drive good employees away
When Larry accepted the new contract, it significantly increased the demands on his employees individually and on his team as a whole. 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 a group of experienced, long-term employees but they weren’t trained for leadership positions. They were caught off-guard and overwhelmed by their new responsibilities. Some of his best left and Larry lost institutional memory, customers and money.
Lesson 5: Growing too fast makes you focus on the short term
When Larry was in the middle of his growth spurt he felt amazing. Cash was rolling in and he thought he was on the top of the world. His Profit & Loss statements looked good and he was beginning to think that worrying about paying bills and managing expenses and operating costs were a thing of the past. But Larry had stepped into a dangerous trap. He made the mistake of only looking at short-term profits instead of considering what needed to be done to sustain long-term growth. He used cash to buy a new company car and pay for a vacation for his family. 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, but growth is complex. It’s requires keeping your eye on three areas of your business: your systems, your staff and your cashreserves. Successful growth requires taking time to plan and prepare to sustain all three areas as your business increases.
Good luck and smart growth.