Growth is Overrated… Especially if You Can't Manage It!

Growth is the objective of all business. It is said (in fact, I have said it), if you’re not growing, in these times, you’re not even standing still; you’re going backwards! But growth, brings its own challenges and if you can’t manage it, it can, often, be worse than not growing.

Bigger is not better; it’s only bigger. So growth can be overrated!

Know why you want to grow and how. You need both a strategy and rationale for your growth. Are you growing revenue or profit? Or both? Further, you need to think about the implications of that growth and whether you’ve got “the goods,” to drive it. Let’s explore the critical elements of growth and what it means to the small business owner trying to make it happen:

Growth means change.

You can’t grow without change, as I’ve noted previously. Whether it’s something small, like pricing or packaging, or something big, like a new product or entering a new market; growth requires change. Yesterday’s victories may be tomorrow’s defeats. What got you here, most likely, won’t get you to the next level. And change can, often, be painful. But it’s necessary for growth. Think of the growth you achieved either personally or professionally. Most likely none of it occurred without necessitating changes in the way you did things. The term “growing pains” always applies.

Rule of thumb for growth

Growth takes resources; resources take cash.

This is one of the biggest things entrepreneurs overlook. You need additional resources to fuel growth. More revenue often requires improved or more product, which requires more development resources. More revenue can also mean more sales and marketing people in more markets. And resources require cash. The more you generate, the faster your growth… to a point. Over the years based on companies I’ve run, turned around or advised, I’ve established a “rule of thumb” for growth. Generally, for manufacturing businesses you can grow about 25-30% per year out of cash flow. For services businesses, maybe 40-45%. Growth beyond that requires more capital to fuel the growth engine.

Growth requires management.

Growth, especially profit growth, provides new management challenges. Whether your growth entails more people, more markets, more products, or some combination of the three, you will need more management bandwidth. And not just for you. That might mean more skills (especially financial), systems/processes (maybe more detailed cost accounting) and structure in your organization; bringing in more professional management; a less flat organization. Again, more change in the way you do business, both internally and externally.

Growth is affected by your environment.

Make no mistake. Your business is affected by what goes on around you. Your local economy; your industry sector; the national economy. If your market sector is facing problems, it will affect not only your business, but your customers. There were few businesses not affected by the recession in 2007-8. No matter what a business’ growth plans were, they were stifled by a national malaise that lasted more than 18 months and impacted some industries for years. While “a rising tide affects all boats,” is associated with the idea that improvements in the general economy will benefit all participants in that economy, likewise the opposite can also occur. A good economy will spur growth; a bad one will inhibit it. While a small business owner can’t affect their environment, they need to be very aware of it and determine how to best survive and grow in it.

Growth without sustainment is wasted effort.

Back to my initial point about having a growth strategy. Part of that strategy has to be, how you will sustain that growth; at what pace? How you will you continue to leverage the resources that you developed or acquired to execute on your strategy and how you will fuel your growth into the future. While you can try to grow both revenue and profit at the same pace, you can’t sustain that. Pick one and the best bet is to work top line. Think about trying to first grow revenue at a faster pace, with less margin, and then you can focus on improving margin on a greater revenue base, later. Whatever you do, you must have a plan for how to sustain both revenue and profit growth over time. Otherwise, you will create more problems than you solve and will have wasted both capital and resources.

Growth isn’t just overrated, it’s also not for “the faint of heart.” You need to be aware that it comes with a bunch of challenges that you need to deal with head on. But if you can get through “the growing pains,” your small business will be bigger, stronger and more profitable.

"The Entrepreneur's Yoda" knows these things. He's been there. May success be with you!

How has your small business experienced growth? Please share your thoughts in your comments. It can help another entrepreneur or small business owner.

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Photo by Praveen Gupta Photography licensed by creative commons, we added text to the image.