Why Growth can Destroy your Small Business

Chart going through the floor

 

Small Businesses have a desire to grow – grow their sales, customer numbers and enter new markets. However unless you have adequate resources and a clearly defined strategy, then growth can lead to the demise of your small business.

There are many fine examples of small businesses that’ve exploded in size as they possess high growth potential. Angels invest, banks lend, crowds fund and external resources are ploughed into helping those companies achieve their growth potential – but not every small business has such significant growth potential. So before you contemplate growing your company, consider the following advice.

Resources

Resources are one of the key factors to consider when growing a small business which include:

  • Money
  • Manpower
  • Skills
  • Premises
  • Machinery & Technology

The obvious considerations are money, manpower, premises and equipment – but one factor often overlooked is the skills required to achieve growth. As a company grows the hierarchy, management and positions change so you need to consider if you have the staff with the right skill set to take on new roles. What skills do you need?  Can you train existing staff? Where can you find the staff with these skills and how much will it cost you?

Draw a list of all the above 5 key resource areas and calculate what resources you need if you achieve a certain level of growth – you’ll often find that right now you simply don’t have the resources available to facilitate your growth plans.

Existing Customers

Remember where you come from and who helped your company get to where it is – your existing customers. As a small business you can afford to dedicate more time and attention on each individual customer, but as you grow your time will be spent elsewhere.

To achieve growth you might want to explore new markets and offer new products in an attempt to grow your customer base. Stop and think about why you won those customers in the first place, what attracted them to you and why do they continue to be loyal customers?

Launching new products to new markets leads to a fundamental shift in your business model, so be mindful not to alienate your core customers at the expense of obtaining new ones.

Sustainable Growth

Grow too big too quick and you’re gone – you must grow sustainably. If that means it takes you longer to achieve your growth objectives then so be it.

To borrow or not to borrow? I have this romantic notion that commerce would be far more sustainable if companies didn’t borrow, but the reality of the situation often slaps me in the face. Borrowing is often the only way small businesses can fund new machinery, employ new talent or make essential repairs. However if you can avoid borrowing and achieve the finances you need over a longer time period, always choose sustainable organic growth.

You need to pay interest – every month and on time which increases the overall amount you pay to achieve the same results. An element of borrowing is outside your control. Interest rates may be at a record low but they will increase in the next year or 2 – yet again increasing the risk and cost of borrowing.

Do you think my advice hinders or helps growth?

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4 thoughts on “Why Growth can Destroy your Small Business

  1. Certainly our old customers are to be given higher priority than new in case of clash of priorities- for our time.
    Again, your advice on not taking loans as far as possible is a very good and practical advice. After all fixed expenses such as interest depends simply on time passed, whether or not we are doing anything at all. The key for small enterprises’ sustainability is to keep the fixed expenses down to bare minimum. We should exercise great caution in sanctioning and incurring fixed expenses.
    The rate of growth, as long as it is in your chosen area of strength and demanded by your customers, can be high too. We grew a company three times in one year by following these two conditions. So we strongly advocate this dictum: Never say No to your existing customers and make it happen. This automatically controls the rate of growth- some years stupendous and some years average. So we need not have to decide what is cancerous growth and what is not. The cancerous growth happens when we pursue growth based on an internally generated idea- may be of the owner or CEO unconnected with and with no discussion with our current customers.

    • Thanks for providing such a detailed response Muthuswamy. It’s interesting to hear your story as an SME where you focus on keeping fixed costs to a minimum. Often business owners get blinded by the prospect of rapid growth and the potential financial rewards that can bring, but too often this is for a select few. I’m glad you viewed my blog as advice on growth rather than hindering it 🙂

  2. I think your advice helps growth because you advocate a sustainable path, developing growth-resilience over time. There’s so much risk in small business already, especially in the early years, so it makes sense to first develop ‘strategic capacity’ to grow. Then again, I guess there will always be some who enjoy the high risk/return gamble.

    • Hi Kerri, I like your term “growth resilience” as it captures what I was trying to achieve from the article. Some companies such as high-tech firms can grow at a rapid pace, but other businesses need to realise that rapid growth is best replaced with organic sustainable growth. Thanks for commenting and enjoy your weekend in sunny Oz 🙂

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