The skills required to grow a business are different than the skills required to start a business; the challenges found in growth different than those in start-up.
Wednesday, 24 September 2014
Billy's Thirty-Third Law: Growing a busineness is different than starting a business
Several years ago, my friend Barb Mowat asked me to join her in a two day program devoted to business growth. Barb spent the first day on how to grow a business. She was, as she always is, supportive, encouraging and left the crowd feeling great! I was responsible for the second day which we called, The Pitfalls of Business Growth. Needless to say, my message was quite different and a bit less supportive and encouraging. Our participants liked the balance that growth for its own sake was often misguided, but with planning and foresight, growth is successful and rewarding!
As a part of that presentation, I developed a model called The Growth Trap. Consider the following scenario:
An entrepreneur starts a business. She works hard and she has some success. People like her product or her service. As time passes, the business becomes more popular. Customers become advocates ... create a real buzz around her business. Sales begin to grow quickly and she is ecstatic. She remembers those early days when sales were difficult and now the orders are rolling in!
Her product popularity pushes her productive capacity to the limit. She is barely getting product out the door on time, or performing services for her customers on time. She continues to work hard on sales, all the while the timeliness service and quality begin to diminish ever so slightly. Everybody works hard and the company keeps up with the ever growing demand. But sales are up, so everything must be all right!
Unfortunately, as the company grows, she needs outside financing. As her sales grow, her inventory and outstanding accounts receivable grow with them. This creates a Working Capital crunch as her cash flow becomes a cash trickle. She needs another increase in her line of credit and her banker wants this thing called a forecast her bookkeeper has no idea how to do one and a consultant wants $5,000 to do a financial plan. "Why don't they give me the money", she wonders with exasperation, "After all, sales are up so everything must be all right."
To fill the demand, she starts to hire people. At first she is very choosy, but as the business is growing she falls in to the 'hire and hope' method of recruitment. At five people, it was just like family. At twenty, it seems that the staff is not even on the same page. But, everything must be all right because she has just opened another new outlet and sales are up. One day her first hire...her right hand woman, so to speak, announces she is resigning.
If this sounds familiar, you are in the same boat of many entrepreneurs who are growing their businesses. You are entering the growth trap... a trap which you must manage to avoid collapsing under the weight of your own growth. Notice that that each aspect of this business grows at a different rate. The result is a company with greater sales capacity than productive capacity, financial capacity and human resources capacity. Eventually, something has to give!
Over the next four sessions, we will examine the effects of the four aspects of your business growing at different rates what you have to do in your business development to actively work on the critical business aspect and importantly, anticipate the aspect that will next require your attention. Growth for its own sake is dangerous ... growth with planning and intent is rewarding and profitable
To get a free chapter of Grow your Biz, the book Barb based on our workshop, go to http://groyourbiz.com/about/free-chapter/.