When Business Growth is Bad – Part 1

Posted by Heather Villa, CMA, MBA, MSM on February 11, 2009 in: Branding, Business - Plain & Simple

Did the title catch you off guard? I hope it did. After all, business growth is the mantra of… well… every single business out there. And it seems good. All of it. After all, who starts a business and doesn’t want it to grow? And it seems like the sooner it grows and the faster it grows, the better.

But the reality is, ALL business growth is not good.

Business growth is good when it can be managed and carefully cultivated. It’s good when a business owner can watch the growth and feel good about the pace and where it’s taking the business.

But when a business speeds up faster than expected, problems can happen. Here are a few problems I’ve seen in businesses that grow too fast, and some suggested solutions.

Problem 1: The business’ orders outpace its ability to fill those orders. This seems good, especially if the money is paid up front upon receipt of the order, and not upon delivery. But many businesses accept payment upon delivery. So, imagine that you’ve got a business that normally gets ten orders a month. And the money you earned from last month pays for the raw material for this month. That’s fine. But then you suddenly get 100 orders. Where will you get the money from to buy the raw materials? Will you have a supplier who can ramp up supply as quickly as you ramp up demand? And, if you lack the production capability to fulfill those orders, what will your unhappy customers do?

Solution 1: As bizarre as it sounds, make sure you have a contingency plan in case you grow to fast. If you suddenly get a huge amount of publicity and orders start flooding in, you might have to outsource, work weekends, get a bridge loan, or even buy from the competitors. And that’s just a short-term, stop-gap solution. Long-term solutions need to be ready to go once you discover that your growth is not a random spike but a sustained increase. Of course, you won’t want to buy up extra warehouse space or manufacturing capacity on the vague chance of business growth, but you want to make sure you at least know where you can get it quickly if you need it.

This problem is more common than people think. Have you ever heard the statistic that a depressingly large percentage of businesses fail in their first year? While there are many factors, this is a surprisingly large factor contributing to first and second year business failure.

In my next post, I’ll talk about another reason that some business growth is bad.

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