If you’re running a business, you obviously want it to grow at a healthy rate. Watching your business expand and cover more ground is very exciting, and provides some measurable validation for all your hard work. It may surprise you to hear this, but it is possible for a business to grow too fast. Here, we’ll look at some of the negative consequences of growing too fast you need to be aware of.
First of all, if you become too much of a big name too quickly, your larger competitors are going to get skittish. This means that they may take action specifically to cripple your business. Let’s say there’s some big, overarching factor which sets your products apart from everything else in the market. A more established competitor will have the financial means to hijack this distinction and market it even more aggressively. If they can’t do that, then other, more subversive tactics might come into play. Some big corporations will even conjure lawsuits out of the air over pedantic little things like packaging. In this article, Josh Tetrick discusses Hampton Creeks challenges such as this. While competition is all part of the game, it’s best to take things slow until you know you can take on the big names.
Misunderstanding your finances is another big risk of growing too much too quickly. When your business is only a week old, I’m sure you’ll have a great handle on your cash flow. From a single spreadsheet, you’ll be able to see how your expenses are stacking up compared to your sales, and the factors affecting these. However, once you grow enough, it becomes much harder to keep track of all your finances. Right now, you may only be chatting to your accountant when it’s time to file your tax returns. As you grow, this will have to change. As soon as your in and outgoings start to feel chaotic, you need to be chatting to your accountant on a much more regular basis.
It’s obviously good if your sales figures go up at a steady rate. However, a lot of young entrepreneurs think that as long as their sales are growing, the rest will take care of itself. This isn’t entirely true. More sales can mean more profit, but that isn’t inherent. There are many different degrees of scale and expense. Sometimes, your sales can grow steadily, but you’ll be going through a period where you’re not actually making any money. Whenever you’re looking over your income statement, make sure to go further than the revenue line. Analyse several different metrics in your finances, narrow down on patterns, and then make future decisions based on this data. Getting a big investment from a private equity firm can be helpful, but only if you apply and understand it in the right way.
As your company begins to pick up speed, stay aware of all these different hazards about out-growing yourself. Aside from that, I wish you the very best of luck in your venture!