How to avoid growth pains in your business

August 17, 2015 Uli Aschenbrenner No Comments

One of the most rewarding things as an entrepreneur is to see the validation of your business idea come to life. Sales flow in, revenue increases and your business starts to grow.

When momentum builds and growth accelerates however, your business can run into problems that you may not have expected. This is often called ‘growth pains’.

Growth pains come in a variety of ways, but can significantly affect a business’s sustainability. Without proper management, it can quickly put a business in a sequence of ‘grow, grow, grow, die’.

To avoid this happening to your business, here are some growth pains to look out for and manage as your business evolves:

  • Employee shortage
  • Productivity shortage
  • Imbalanced departments
  • Lack of capital
  • Legal restrictions
  • Culture
  • Understocked

Staff shortage

One of the biggest problems entrepreneurs fall into is trying to do everything themselves in order to get things done properly or save money. While it may certainly be needed over the short term, it’s critical that you don’t overwork yourself or delay hiring staff when you can.

Overworked

As an entrepreneur you have to wear multiple hats, but working in your business, instead of on it, is a much less valuable use of your time – especially if sales grow and you don’t have the capacity to adequately serve customers or give yourself down time.

Be very careful of not overworking yourself or your staff and plan ahead of when you need to hire. Do this by assessing your staff capacity, and projected sales (more on that later).

When you do eventually hire, keep in mind there will be a delay in finding, recruiting, training and mentoring your staff to get them up to a productive level.

Flexible working

To help mediate the risk in hiring new staff, consider placing existing staff, or new staff on a flexible working arrangement, whether that be casual or part time. This allows you to adequately schedule the right amount of staff relative to the sales volume you receive.

Productivity shortage

There are a variety of ways in which businesses lose productivity, however one of the most common ways is to try and do too much, too soon.

Lack of focus

Adding more products or services to your business can be a great way to grow as it adds an opportunity for existing customers to purchase more from you. The downside however, is that it can spread yourself too thin, or dilute your focus/brand on improving your core business.

Growth is never a straight line increase, so expect that you’ll spread yourself thin at times, going in waves of sales revenue. What’s critical is that you recognise when you’re overextending your business and cut back to core products/services.

This typically happens when you find that your staff can’t adequately get to all tasks at a cost effective rate, due to a lack of focus, systems and procedures.

Undefined roles, responsibilities, outcomes

In addition to overextending yourself or your staff, it’s important that focus is kept within the company through clearly defined roles, responsibilities and outcomes.

This helps to prevent staff from dropping the ball, palming off work or getting complacent.

As well as helping to keep focus, clearly defined roles, responsibilities and outcomes also help to motivate staff, giving them a clear indication of when they’re performing well, and when they are not.

Imbalanced departments

Every business needs to be able to balance marketing, sales and delivery.

Too much marketing, without enough sales staff and you’ll have customers coming in the door without adequate staff to service them. This leads to lost sales, disgruntled customers and overworked staff.

Too many sales staff without enough marketing and you’ll start to haemorrhage money in wages or salaries and demotivate staff as they get bored.

Too much marketing and sales, without delivery of stock leads to unhappy customers, or a loss of sales. And too much delivery of stock without enough sales and marketing, and you’ll have products sitting on the shelves while the business is dying from a lack of sales.

It’s difficult to manage all of this in the beginning, but your business will soon start to develop a pattern of sales.

Keep track of core metrics such as:

  • Sales volume (weekly, monthly, yearly basis)
  • Expenses (product, rent, wages etc.)
  • Average sale value
  • Average sale quantity
  • Best performing products
  • Best performing staff
  • Refund/exchange rate
  • Customer retention
  • Customer satisfaction
  • Sales per square foot (retail)

Once you have an understanding of your core metrics, you’ll better be able to predict them, look at where you can leverage your business for growth and plan your business around them.

Lack of capital

A lack of capital is common among a wide variety of businesses. Growing fast can quickly use up your capital so it’s important you maintain cash-flow and don’t overextend yourself too quickly without solid numbers to validate your future earnings.

Oversupply

In retail, a lack of capital can be down to an oversupply of stock or dead stock that’s difficult to get off the shelves. Keep a close eye on your sales figures, carefully predict your stock levels and keep your stock rotating by hosting a variety of sales. It’s better to reduce your margins on stock, than it is to let it sit on the shelves while your expenses continue to run.

Sunken costs

Just like managing an oversupply of stock, it’s important not to spend capital in areas that don’t measurably affect the business. Throwing good money after bad in a “sunken cost fallacy”, in hope that it’ll turn around just leads to money running down the drain. If something isn’t working, cut your losses and move on.

Luxuries

When everyone asks how business is going, it’s tempting to display a sense of success. This can end up in unnecessarily spending money on furniture, equipment, hotels, a company car or fine dining at the company’s expense. While it’s important to fit out your business, reward your staff and keep motivation high, keeping an eye on expenses and looking for good value will help maintain capital in the business, allowing you to weather through the unexpected tougher times.

Equipment

If you need to purchase new equipment, make sure you have a set ROI calculation to justify the purchase and at what point it’ll pay for itself. Having equipment idle costs you money and opportunity, as the funds could have been spent elsewhere to generate revenue.

Slow to pay customers

If your products are paid by invoices, it’s important that you don’t let invoices trail behind. Keep on top of your invoices and have clearly defined rules as to when payment needs to be made, what the consequences are and how they can be rectified.

Carefully explain this to customers. You’re not a charity, you’re a business and if they want to receive great products and services, you need to be paid on time and earn a profit.

If invoices are regularly delayed in payment be very wary of delivering products in the future, and restrict any future stock until invoices are paid up to date.

Taking risks

Another way businesses end up with a lack of capital is by pushing too hard in areas of their business without proper basis for the decision. There’s been quite a number of stories of business owners spending over $100,000 on a full page ad in a newspaper, without receiving any business from it.

If you plan on making a risky decision, mitigate your risk by understanding what you’re getting into and validating it with hard evidence and don’t overextend yourself unnecessarily. It’s not to say that you can’t take risks, but it’s wiser not to necessarily go “make or break” without considerable thought.

Legal restrictions

In the haste of getting a business off the ground, a lot of entrepreneurs forgo dotting their ‘i’s and crossing their ‘t’s. While you don’t necessarily need to have things perfect from the get go, it’s important that you understand legal restrictions early on, and protect your business as it grows.

Trademarking

If you think trademarking is a waste of time, you may be shocked to hear that it’s quite common place for small businesses to have to change their name due to legal threats from larger companies. It’s a very expensive procedure, especially if you have stock, print material or signs.

By trademarking, you can protect your business against bigger companies, even if they have more money to throw around in a legal case.

Licenses

Adding new products or services to your business can be great, but it’s important that you know the appropriate licenses you may need to do so. They can vary from liquor licenses to vehicle operation, transport and sales.

Patent

In business it’s far less common to invent something, than it is to simply rehash, innovate, or copy someone else’s idea. If you’re creating something new, it’s important that you protect your business with patents where applicable. If someone can take your idea and throw more money at it to push you out of business, chances are they will.

Culture

Companies that thrive are ones with strong company culture. If you haven’t set guidelines for company culture it makes it difficult to develop a team that will get along and share the same vision.

If you’re a new business, the first few staff are the most important as they set the bar and establish the culture. Make sure you choose your first few staff wisely.

As you grow, there will be more demand to hire quickly, which can often mean values, vision and culture are compromised. When this happens, productivity slumps, conflict arises and good staff leave.

Your company culture will evolve over time, but it’s important to set the boundaries of what is and isn’t acceptable from the beginning, making it easier for your team to work together and the hiring process easier.

Understocked

Being understocked sounds like a quality problem (hey, you’ve sold your stock!), but it can also mean you’re missing out on sales and revenue!

It’s obviously important to keep stock levels up, but one of the key elements to doing this is to build strong relationships with your suppliers by communicating on a regular basis, and communicating clearly.

There are a considerable amount of conflicts that arise from poor communication, so be courteous, professional, patient and clearly communicate with your suppliers.

Pay on time

Relationships are built on trust, and if you fail to pay your suppliers, this trust is degraded. If you look after your suppliers, they’ll look after you.

If for whatever reason there is a delay in your payment, clearly communicate this with your suppliers. The only thing worse than failing to pay your invoice is failing to pay and not communicating why or how you’re going to resolve it.

Summary

As your business grows, so does the number of challenges you face. However, with proper planning, management, systems and processes challenges can become opportunities and your business can grow to a new level.

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