Entrepreneurs and business owners are always looking for ways to grow their companies quickly. However, a recent study by the Kauffman Foundation and Inc. Magazine revealed a shocking trend: fast-growing companies are more likely to fail than slow-growing ones. This finding challenges the conventional wisdom that growth is always good for businesses.
Why is fast growth often a business killer?
Receivables & Inventory
First, fast growth strains a company's cash reserves. As receivables grow, cash in the bank drops. Growing inventory and ordering customer materials drain your bank account. When a company grows quickly, it may not have the resources to support that growth. Rather than accumulating a cash reserve to meet the demands of costs of goods sold, a company can die on the vine as they simply do not have the capital to meet production demand.
Investing for Future Growth
When you know you’re going to be growing fast, you tend to lease facilities that are bigger than you really need right now. You buy more trucks and get more equipment than you can profitably use right now since you know you’ll need them. But until the business comes in, all this is an anchor to your cash flow. “It takes money to make money,” they always say, but what if the money to invest isn’t there? The company finds itself in the unenviable position of having counted chickens before they hatched and thus unable to meet the cost of the business in the present day.
Suboptimal Customer & Product Mix
Fast-growing companies can be so busy meeting the needs of their customers, they don’t have time to stop and realize that many of their customers are not worth having. None of the optimizations can happen from analyzing data – dropping offerings that don’t make you any money, culling unprofitable customers, outsourcing work that isn’t part of your core competency – and all this hurts your profitability.
Inefficient Staffing
The bigger company you are growing for the future will need more people. If your company is growing, you’re probably already short-staffed. This leads to crisis hiring, a staff with a low average experience level, and tremendous inefficiency.
Wasteful Marketing
New and expanding companies are often entering new markets. They are unsure of the most efficient way to reach customers with their product or service offerings. Even in a perfect world, your marketing spend isn’t perfect. In fact, it’s mostly wasted. This is doubly true if you are expanding at a breakneck rate.
How Can We Help?
An Affordable Website
The most affordable way to reach customers is through a simple, organically-ranking website. While we also offer PPC (Google Ads) management, you can’t beat the bang for the buck of a simple, targeted website. If you don’t have a lot of budget for getting out the word, you at least need a strong website.
Inexpensive, Scalable Calling Services
In marketing, nothing compares to the power of a phone call. If you know who your target customers are, our team can call them with a targeted pitch to set appointments for your or your sales team. This is particularly effective with targets who have opted in to receive calls (which is required by statute for most consumer calls), or in the business-to-business space, where rules are less onerous.
Of course, growth is good, but it’s an important exercise in restraint and big-picture thinking to understand that there is such a thing as too much growth too quickly. This is why having another team in your corner is so vital to ensuring that you are growing within your means.
If your company is growing fast – or if you’d like it to – don’t go it alone. We know how to help you manage your growth while keeping your cash in the bank.