Typically, growth and expansion are indicators of a healthy business. However, there are typically many misconceptions and a greater story behind those growing businesses. It may be easy to get caught up in others’ success stories, especially when hearing that someone increased their revenue by 300% or they expanded their workforce to four times the size in the past quarter, for example, but that’s only half the story. Risk is the key element facing every business from the start, but that risk never goes away; it only multiplies. Risk is associated with growth, but it’s how you face the challenges of risk and adjust with growth that plays a key role in your business’s success.
Consider these three tips about the downsides and challenges business owners face as their business thrives, as well as advice on adjusting with these shifts:
• Cash flow management and the growth of reserves.
Rick Sems, First Bank Executive Vice President, candidly explains that the biggest element of success in a growing business revolves around capital. “It’s essential for every business to have the viable cash flow and appropriate assets it needs to sustain long-term growth. As companies grow, they naturally have a need to consume more resources, which can cause a liquidity crisis. This is why companies in a growth stage need to ensure they have capital readily accessible.”
Access to capital at any stage of business is extremely important and one of the leading factors of failure can be a lack of liquidity. Poor cash flow, mismanagement of money, and lack of cash reserves or simply running out of cash are all leading contributors to business collapse. In fact, running out of money is the second most common reason cited for business failure1. During the growth stage, proper cash management and adequate forecasting are crucial.
Continue production, rely on your top talent to continue bringing in capital, turn a keen eye on your operating cycle, and don’t hesitate to negotiate with vendors or weigh the pros and cons of owning or leasing your property (or future property and plans).
• Remaining nimble in response to competition and market changes.
“Strategy becomes a bigger deal in growth. This is where you develop and implement a value proposition, learn more about the edge you have and establish that competitive advantage in your market or industry; the efficiency [or even inefficiencies] of your model become more clear in this stage – and even more important,” expounds Sems.
As a company grows and becomes successful, many will take notice, including competitors within your field. Be prepared to encounter the competition and react accordingly. It’s important to focus on your abilities and actively employ your value proposition during this growth stage. As Sems acknowledges, “As you get bigger, you’re more likely to be a target on a radar screen from a competitive perspective, meaning you’ll also face a higher level of scrutiny. There is, however, a positive to that and it’s that things don’t always stay the same. If you decide to stay and stick around but haven’t diversified, it’s easier for someone to knock you around. The payoff lies in diversifying your business.
• Cultivate and nurture a great workforce and company culture.
A business is only as good as its people; key objectives of a successful, growing business are to recruit and retain the best fitting talent, empowering them with the proper resources and abilities, and adequately managing all of the employees’ personalities to assist in the buy-in process of your business. Sems added, “Secondary issues revolve around people. In growth, you’re typically looking to bring on more people. It’s important to ask yourself if the people you have can make adjustments to a more sophisticated or demanding environment. It requires the owner to manage a broader spectrum and that can be a real challenge for some companies.”
Company culture is typically formed at the onset of a company when identifying key personnel and outlining various roles and responsibilities. While scaling up, be sure to maintain a healthy company culture by preserving your values and traditions. Establish clear values from the onset of your company and help your employees and other potential candidates by consistently and clearly communicating those principles. Don’t just speak to your values – truly live by them to impart the same ideals to your workforce.
1Source: CBInsights, “The Top 20 Reasons Startups Fail”
For more information on the downsides and challenges you face with your business’s growth, please contact Karen Brown, Senior Vice President/Commercial Loan Officer, by calling (818) 226-3233 or via email at [email protected].
