Is Rapid Growth Always Good?
January 24, 2023
Owners and managers of small businesses and SMEs like to dream big. Of course, this is good. If they didn’t dream big, they would probably never be in management in the first place. Dreaming by owners and managers, or more realistically what should be goal-setting, helps their small businesses and SMEs grow, prosper, and become long-term sustainable entities.
Goals Must Be Realistic
At some point, however, the goals may actually become unrealistic. Regardless of the current success a small business or SME enjoys, management must realize that continued success hinges on the ability to meet commitments...to customers, employees, investors, or lenders. If a business fails to deliver on commitments to any of its stakeholders, then all of the energy and investment put into the business might be lost.
As strange as it might sound, one of the major areas of growth risk relates to accepting more business than what can be handled efficiently. Although a small business might have experienced a phenomenal growth curve in the past with excellent execution, it cannot automatically be assumed that the business can continue on the same path indefinitely. While resources may have been adequate or even underutilized in the formation or early growth phase of the business, those same resources might one day reach their full operating effectiveness. Suddenly, a small business might find that its growth cannot continue without an influx of additional resources – skilled employees, plant or location expansion, additional vendors, an influx of additional funding, etc.
The key to preventing a fast-growth, potential business disaster is with prudent strategic planning and realistic goals. Revenue planning is just one part in a business’s overall strategic plan. Consideration must also be given to all facets of the business including:
Budgets: Short and medium-term budgets including projected cash flow and future capital asset needs must be developed.
Human resources: HR is not just about hiring additional employees but foreseeing what skills are needed, salary projections, location of employees, recruiting, and training plans.
Location and equipment: Businesses must determine what is an optimal location (customers, employees, vendor deliveries), potential for expansion, necessary fixtures and equipment, brick and mortar, and/or online.
Technology: As a business grows, it’s hardware and software needs should be analyzed to determine what changes and/or additions need to be made necessitated by an increase in business.
Supply chain management (SCM): The SCM of a business will most likely change as a business grows; therefore, all segments of a business should be viewed as one so that each is an integrated element that produces an effective SCM throughout entire business.
Vendors: Management must understand that vendors play an important role regarding expansion plans of a business considering the need for an increase in raw materials, having sufficient inventory and supplies on hand, reviewing cost comparisons, and seeking alternate sourcing opportunities. As a business expands, the list of vendors and potential vendors should also expand, so a business does not rely on only a handful of vendors to supply it needs. Contingency backup plans are important.
Marketing: Marketing is an integral part of business growth...understanding the full market potential, target segmented markets, and capitalizing on additional marketing opportunities.
Capital structure: A small business or SME cannot run out of cash. Options for additional debt and equity financing should be investigated before any need arises.
Recognize Internal Resources
As a small business or SME grows, it can quickly outpace its internal resources. It is critical to continuously assess a business’s strengths and weaknesses, so it can capitalize on strengths and improve upon weaknesses that cause a competitive disadvantage in the marketplace. Assessing and supplementing a company’s skills early in the growth process is a key ingredient for successful growth. A small business cannot wait until the need arises but must plan in advance so when rapid growth appears, the business is ready.