Small businesses always strive for growth, but make sure you're not outgrowing your capabilities.
Scaling too quickly can be the death knell for otherwise successful businesses. It's crucial to avoid outgrowing your capabilities, but understanding those limits is not always easy. Keep an eye out for these telltale signs that while business is booming – they might be overburdening your organization.
Cash flow is insufficient
One of the biggest red flags surrounding the pace of growth is when cash flow dries up even when business is good. Typically this occurs because a business is collecting old payments from when it was smaller, while paying new, larger expenses.
Added Torrens: "As you grow, you are spending money to perform on increased demand and volume while collecting on receivables from the lower volume period that just passed," said John Torrens, professor of entrepreneurial practice at Syracuse University's Whitman School of Management. "The inflows simply do not match up with the outflows during times of high growth. If a business did not plan for this by building cash in advance of a growth stage, then this can create stress on the organization."
What to do about it
Ideally, you will have planned for this problem before it rears its ugly head. Saving cash in a growth reserve fund can preserve the liquidity you'll need when you jump up to the next level and expenses rise along with your business. As always, it's wise to overestimate expenses and underestimate revenue so that when projections are off, you have a margin of error in which to operate.
If you've failed to maintain enough liquidity, don't worry. Most of the cash flow problems associated with rapid growth have to do with money being tied up in accounts receivable. If you're willing to spend a little bit off the top, an invoice factoring company will not only loan you a large percentage of your outstanding balances but will actively pursue collections as well. Not only does this free up some working capital for your business, but it takes the burden of following up with unpaid accounts off your staff so they can focus on quality service instead.
Employee morale is on the decline
As a business scales, so, too, do its responsibilities. That means your employees are likely handling more than before without any change in their compensation, at least at first. That's the perfect recipe for a slip in morale, which is just one step away from declining productivity and customer service quality.
"Rapid growth may be a welcome thing for the founders, partners, or executive team, but for the employees that are suddenly facing the prospect of doing more with the same resources, it can be demoralizing. In the worst case, employees resent management because they see the growth as good for management, but not for rank and file employees who are asked to shoulder the load of meeting the increased demand."
What to do about it
Keeping employees happy is essential to running a successful business. An obvious answer is to increase employee compensation, but if your cash flow has become problematic because of your growth, that might not be possible at first.
In the meantime, ensure your employees are not overworked and recognize their contributions publicly. Once your cash flow returns to normal levels, consider offering bonuses or increasing compensation. If your employees are overtaxed, consider bringing on new hires to reduce everyone's workload.
Customer service lapses
If you've seen a sudden uptick in customer service complaints, it could be a sign that your business has grown too quickly. With more clients and the same sized team, it can be tough for your employees to continue giving each customer the same level of attention. Employee fatigue and burnout could also lead to more mistakes and more dissatisfied customers.
"Our first signs that we were growing too quickly were simple things such as not returning prospects emails/calls as timely or not being able to take inbound calls as needed," Matt Schmidt, CEO of Burial Insurance Pro. "I woke up one day and knew we had to bring on new people to address the demand of the public."
What to do about it
When it comes to degrading customer service, you have two choices: hire more people or take on less work. Naturally, hiring more people is attractive, but if you've run into cash flow issues, you'll need to get those rectified first. Nobody wants to say no to more work, but if it means the long-term success of your company to pare back growth in order to gain stability, it could be a prudent decision.
Leadership is looking backward
When a business grows too quickly, pressing tasks begin to pile up. This can cause management to begin playing a reactive role, instead of a proactive and strategic one. While managing the day to day workflow is important, continued planning for the future is critical. If growth is outpacing planning and leadership is in disarray, it can compound all the other problems caused by scaling too quickly.
"One of the problems I have witnessed when companies grow too fast is that top leadership and management struggle so much to keep up with 'I need it yesterday' demands that they stop paying attention to the long term planning and creative development that fueled the company’s growth in the first place," said Frankie Russo , CEO and president of Potenza Creative.
What to do about it
While management must continue to ensure delegated tasks are completed in a timely manner, they cannot get bogged down in minutiae. Trust your employees to complete the work you've assigned them and consider using project management software to more easily track and manage workflows. The management team should continue to meet for specifically forward-looking meetings. This way, even when the day to day is hectic and the demand to follow up on incomplete tasks is great, decision-makers can carve out some time to think about where the business needs to go and how they're going to take it there.
Growth is good, and businesses shouldn't shy away from it. However, unplanned growth can be detrimental when it begins to impact operations and take control out of management's hands. To avoid runaway growth and the eventual collapse that accompanies it, regularly think ahead and plan, scale with purpose, and avoid biting off more than you can chew.