Reasons Why Growing A Business Too Fast Can Harm A Business

What problems can rapid growth cause a business?

After your business starts generating profits, your next objective is likely to encourage its expansion. However, if this expansion occurs too swiftly, unforeseen challenges can arise. In this article we will take a look at the top six issues stemming from rapid business growth, along with guidance regarding how to manage them.

The phase of growth and expansion is a thrilling period for any small business. Initially, a startup’s focus is on acquiring customers, delivering the service or product, and reaching the break-even point as quickly as possible. According to traditional business models, once this point is reached, profitability is expected to follow. However, for certain small businesses, the aim is exponential growth, which can pose its own set of challenges. Entrepreneurs often underestimate the immense pressure that comes with rapid business expansion.

This writing is informed by representing thousands of business owners as a business law attorney Los Angeles companies trust; additionally, the best data comes from my first-hand conversations with business owners and their leadership team about the risk of growing business too fast.

Your business might encounter a cash flow squeeze when confronted with booming demand for your services or products.

Managing the expenses of a fledgling business can be challenging for any entrepreneur, especially following the initial capital outlay to start it. At this juncture, your business may be relying on credit while striving to boost sales and revenues. As you push for increased sales, it is foreseeable that monthly expenditures may rise, potentially surpassing your monthly earnings making it a risk of growing a business too fast. If your collections remain on course, this is not an insurmountable issue. However, a couple of cycles with delayed collections could leave your business in a precarious position.

To ensure a steady flow of cash, you should prepare for the possibility of a cash crunch with a practical strategy that accommodates potential delays in receivable collections. It would be wise to develop a contingency plan for accessing funds from personal sources or through a pre-approved line of credit from your bank. If feasible, diversify your client base. Relying solely on one major client for revenue leaves your small business susceptible to that client’s shifting circumstances.

Uncontrolled expansion can lead to operational inefficiencies, consuming your company’s time, finances, and other valuable resources.

As your business experiences rapid growth, you may find yourself needing to adapt swiftly to meet the heightened demand for your services or products. However, if this expansion occurs too rapidly and prematurely, you may find it a risk to growing your business too fast, where operational processes flow seamlessly. Pressures may mount to hire additional personnel sooner than anticipated, and you might not have the expertise or time to restructure your workflow to accommodate the surge in demand. While increased demand should ideally lead to economies of scale, this may not be the case if rapid growth gives rise to any of these issues:

• Insufficient training for new employees.
• Delays in manufacturing or procuring inventory to fulfill orders.
• Inaccurate assessment of the costs associated with product delivery and customer interaction.
• Subpar customer service standards.

Over committing to customers is a risk of growing a business too fast. You should ensure effective management of the ordering system and order fulfillment process to avoid over-committing to customers. If possible, seek advice from owners of other rapidly expanding businesses to learn from their experiences and better prepare for potential challenges. You might also consult with advisors at a local Small Business Development Center (SBDC) or Service Corps of Retired Executives (SCORE) chapter for valuable insights. Their services are offered at no cost, and they can help you anticipate and address issues specific to your type of business. Further, remember that it is preferable to decline orders rather than risk frustrating customers by being unable to deliver on time or provide quality goods and services.

You begin to receive an influx of unfavorable feedback stemming from customer service concerns.

While occasional customer grievances are a normal part of conducting business, an accumulation of negative feedback suggests a shortfall in meeting client expectations. This may stem from a shortage of staff dedicated to managing client interactions. It could also indicate broader issues if your team is stretched too thin and resorting to shortcuts to meet customer demands and thus a risk of growing your business too fast.

Customers who offer positive feedback are more likely to become repeat patrons. A surplus of negative feedback might signify that you’re struggling to meet market expectations in terms of service delivery due to being overwhelmed. It is crucial to regularly monitor your feedback channels, stay vigilant about social media mentions related to your business, and have a well-defined plan in place for addressing both positive and negative feedback.

Your staff is stretched thin, logging extensive hours and considering leaving.

In sufficient staffing is a risk of growing a business too fast. A dynamic work environment encourages employees to give their all, but when work takes up most of their waking hours, you may face the prospect of losing valuable and skilled team members. Despite offering competitive compensation and benefits, you might observe a high turnover rate in your business.

As your business expands, be attentive to the shifting workplace atmosphere. Make sure to allocate time in staff meetings to address concerns related to work-life balance. Prioritize addressing personnel issues promptly and efficiently.

Your office space becomes too small for your expanding business.

A growing staff with a small office is a risk of growing a business too fast. As your business grows in terms of employees, you can expect an increase in desks, filing cabinets, and on-hand inventory. If you outgrow your current office space and decide to move before your lease term is completed, you might be obliged to continue paying the lease until a new tenant is secured for the space.

The most effective way to preempt this issue is to consider it when you are entering into a commercial lease agreement. If you are just starting out, you might consider opting for an executive suite or space in a business center that offers monthly or yearly rental terms. If your business has reached a stage where committing to a more permanent lease makes sense, you may want to limit the term (number of years) to three years, especially if further growth is anticipated. Also, if possible, have your attorney negotiate an “out” clause in the lease. This provision would outline the conditions under which you could terminate the lease early, perhaps by providing the landlord with three months’ written notice.

If you are already in a lease without an available out clause and require more space, ask your landlord about any additional space they may have and if they are willing to accommodate your needs. If this is not an option or you prefer not to stay in the current location, review your lease to determine if subletting to another party is permitted, and under what conditions.

Your capacity to lead and oversee operations weakens under the strain of mounting demand.

As a business expands, the founders typically shift into leadership roles, entrusting operational decisions and tasks to others. However, experiencing rapid growth may lead to a loss of focus on critical functions, resulting in an overload of tasks and subpar outcomes. This is a risk of growing a business too fast because it can lead to internal frustration and disappointment for clients. The situation worsens when internal business systems and processes suffer due to over extension. Insufficient control over budgeting, inventory management, marketing, and sales initiatives can jeopardize your business’ success.

Outsourcing non-essential administrative functions can be a practical means of delegation. This arrangement can be either temporary or permanent, depending on your specific requirements. It’s crucial to align your processes with the growth of your business. Recognize that no one is an expert in every area, and this phase may necessitate bringing in highly skilled professionals to navigate your company through the necessary changes for expansion.

According to data from the Bureau of Labor Statistics, approximately half of startups survive their first five years, and one-third endure for a decade or more. This survival trend has remained relatively stable over the years, emphasizing that businesses prepared to navigate rapid growth and avoid the risk of growing a business too fast.