When most new entrepreneurs get involved in a startup for the first time, there’s one thing on their minds: growth.
They want to enter a market, scale up as quickly as possible, and start earning the rewards of leading a multimillion dollar organization.
Why is this?
The benefits seem obvious, and they’ve been played up in our current entrepreneurial culture. The headlines are full of stories of tiny operations that turned into massive juggernauts, seemingly overnight, and stories of tech companies that built themselves models that reap millions of dollars in profit. It’s alluring, but there’s actually a danger in growing too quickly.
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The Mechanics of Growth
First, you have to realize that growth isn’t really necessary to run a successful business, depending on what you define as successful. If your goal is to build and manage a sustainable operation in the long term (i.e., covering all expenses while generating a profit), your business could feasibly be as small or large as you wanted it to be.
At higher scales, you have the potential to make a higher profit, and of course, there’s the grandiosity of leading a major business, but on paper, there’s no real “need” for growth in terms of operational expansion.
Where you do need growth is in an initial customer base (and employees to keep up with demand). Growing too slowly, and never meeting your minimum revenue requirements, is an existential threat to new businesses. However, this is not an excuse to grow indefinitely and as quickly as possible as many businesses attempt. This is dangerous for a number of reasons.
Investing Too Much
Most businesses can’t just grow on their own; they need injections of capital in order to get the job done. For some businesses, this means a heavy investment in marketing and advertising to attract new clients. For others, this demands hiring lots of new people to meet new consumer demands.
For still others, this means investing in new real estate, equipment, and other tangible goods to increase production or expand a geographic presence. You might even need investments in all areas to grow.
In any case, you need to pour money into your operations, and if you grow too quickly, you’ll pour too much money into your enterprise before you have the customer base to support it. It’s a good way to exhaust your reserves and put your business in dire financial straits.
Effects of Scale (Operations, Production, Cash Flow)
Your business, when it serves 10 customers a week, will not be the same as your business when it serves 1,000 customers a week. The effects of scaling up will demand significant changes to your organizational structure, in ways you might not be able to predict. For example, you might need new niche roles in human resources that you didn’t need before, such as assistants or coordinators to serve your main staff.
Your physical equipment might not be able to keep up with the new production capacity, or your previously profitable operations might end up barely breaking even thanks to inefficiencies you never noticed at a small scale. Even your cash flow can be disrupted, depending on bigger swings and less predictability.
Instead, it’s far better to scale iteratively. You’ll notice these inefficiencies and changes at a gradual pace, giving you the opportunity to respond to them in a timely and proactive manner.
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Focus on Sales
Another problem businesses have in scaling too quickly is focusing exclusively on sales. When the end goal is general growth, they tend to think only in terms of incoming customers and incoming revenue. This isn’t inherently bad, and often leads you to your goals, but the drawback is you never get a chance to focus on your infrastructure, or your operations, or any other process that also need room to grow. A slower pace gives you the opportunity to focus on these areas.
Reduction of Customer Service
When you start out as a small business, every customer will be precious to you. This inherently takes your customer service to a higher level of quality (and a personal level of commitment). Sometimes, not always, expansion can ruin this.
Your customer service team will be managing more customers all at once, you’ll have fewer (and newer) staff members, and you’ll be forced to adopt formulaic and systematic customer service procedures that may come off as alienating to your previously loyal customer base. It can cause major ripples for your business.
Finally, a fast expansion can have a diluting effect on your company culture. You’ll have to hire new team members, and if you don’t take your time, you may end up hiring poor culture fits. You won’t have as much time to work with the team hands-on as you make more executive decisions.
Your organization will become more segmented and bureaucratic. These things aren’t inherently bad, but if they happen all at once, they can radically change your culture, resulting in lower morale and a different vibe to your corporate atmosphere.
Growth is exciting. It has massive potential to earn you more money and push your limits as a leader. But that doesn’t mean you should chase after it as your only goal, or sacrifice the quality of your business in order to attain it. You’re far better off remaining patient or even idling for a few years as you start developing the foundation for your enterprise.
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Unless your business has a desperate reliance on the timing of your central idea, rapid growth carries more risks than it’s worth and even in that scenario, your business lacks the potential for long-term development anyway. Focus on the fundamentals first, and only grow when it’s right for your organization.