Insight: Don't grow your business into trouble
When does growth mean trouble?
When businesses let it outstrip people, processes or controls. Growth is good, but managing its pace is critical. The hard part is being self-disciplined and aware of your limitations. If you don't continuously think about those questions and realistically pace growth, you can take on more than you can execute well. By execute well, I mean you take on so much growth that you cannot maintain your quality, and customer satisfaction plummets. That obviously is not good. The other big issue is being able to afford growth. It's also not good when you spend more money than you can afford on people, raw materials, supplies, equipment or space, not taking into account the timing mismatch between that spending and the actual receipt of cash from new orders. So, the challenge is to constantly try to match growth with capabilities and affordability. It is a balancing act.
When should an owner ease off on the gas pedal?
Entrepreneurs need to relentlessly monitor everyday quality, customer satisfaction, employee morale and cash flow. If quality mistakes are increasing, if delivery times are not being met, if customer complaints increase, if cash pressures increase, if employees are way overworked for long periods of time, then let up and do not take on any more growth until you can right the ship. Entrepreneurs need to sense when they are losing control. They need to take time every day before the business opens and after it closes to critically evaluate this issue.
Which risks are manageable?
Growing businesses need to manage employee, quality, "reputational," financial and cultural risks. That means hiring and retaining the right people who fit; building a culture that engages employees in the pursuit of excellence every day; constantly improving and delivering better value to your customers than the competition; and staying strategically focused and operationally focused are mission critical. As a business grows, it continuously has to upgrade its people, processes, technology and controls. As a business grows, the entrepreneur must grow, too. An entrepreneur must learn to manage and lead, not just do.
Where does change come into play?
In most cases, growth requires more of almost everything. All of that is change. Adding people changes the work environment and the interpersonal dynamics. It requires the entrepreneur to hire or train managers and to delegate more. That requires better daily reporting, management information and financial controls. When a business grows, the entrepreneur no longer is intimately involved in every transaction. Quality issues arise. It goes on and on. Too many entrepreneurs have the false illusion that growth solves all their problems. Well, yes it does solve some but it brings in a whole host of new challenges that can become problems if not properly managed. That is why the entrepreneur needs some "firehouse time" to think, plan and evaluate time not fighting the daily fires so that work can be done on the business, not just in the business.
Dawn House Ed Hess, author
On Monday, Ed Hess will be lead instructor of a free online course, "Grow to Greatness: Smart Growth for Private Businesses," presented by the University of Virginia's Darden Graduate School of Business at http://www.coursera.org/