If you grow too soon, hitting the accelerator by developing new products, customers, or markets could be the path to self-destruction.
Planning for Growth
Young companies typically want to enter the race to growth, as scaling is seen as a sign of success – it’s the tortoise and the hare scenario. Evidence points to a different reality: if you grow too soon, then hitting the accelerator by developing new products, customers, or markets could be the path to self-destruction.
Results from a group of entrepreneurs and VCs who studied the strategies of approximately 3,000 high-growth internet companies conclude that premature scaling is the number one cause of failure. Their findings suggest that it is not poor products or poor design or lack of funding that inhibit success; it is doing too much too soon.
Companies that try to scale prematurely spend too much time on acquiring customers versus perfecting the product, or they move ahead without soliciting feedback from users. Interestingly, the study revealed that companies that approach growth in smaller steps tend to grow 20 times faster than the norm. While swift execution of strategies is necessary for part of your plan, remember that you might consider being more like the tortoise, and not the hare, when it comes to high growth.
When You’re Ready…
If you have reached a point where you have been in business for five years or more, have steady revenue, and repeat customers, you might want to consider what the next level should be. The strategic issues are key: Where do you envision growth? New markets? New products or services? Acquisition? Or some combination?
If you do decide that growth is your strategy, think long and hard about the resources it will take to get there. Particularly for a small business, cash is king. You should be keeping tight controls on your accounts receivable so that you maintain a steady cash flow while implementing your growth strategy. Having access to a line of credit is helpful. You will need funding for research, business development, customer acquisition, and more.
Equally as important as financial resources are people resources. Do your current employees have the right skills and attitudes for growth? Every business owner has to look at their employees and assess whether or not they have the skills for the future of the company – which may differ from what they originally brought to the table.