Experiencing Exponential Business Growth? Don’t Celebrate Too Soon.
Most entrepreneurs are obsessed with business growth. No matter where we are we want to double and triple our sales. We want to increase our profits.
So naturally, when we see a month-to-month uptick in our sales, we’re thrilled. The bigger the better!
But if you’re not ready for growth it can hurt. Here are a few things to consider before popping the champagne after a record-breaking month.
1. Did You Get Too Many Sales?
Too many sales? Too many customers? Is that possible?
Yes, too many customers too soon can be a big problem. Here’s an example from an e-commerce business.
Let’s say you start your business with $200 and buy 100 pairs of socks. ($2 each) You start of selling just a few pairs a day for $4 each, doubling your money. So long as you just get a few sales per day your can re-invest your profits and slowly grow the business.
But what if your business ‘goes viral’ and you suddenly get orders for 10,000 pairs of socks. Do you have $20,000 to supply the demand? You may need to take out loans to buy the inventory. Now you have a BIG liability on your books. If demand then dropped off, you would be stuck with lots of socks, just a few customers, and $20,000 in debt!
This is what’s called a ‘cash flow’ issue. If sales had grown more gradually, the cash flowing back in from those sales would have been enough to cover your inventory needs.
2. Did You Raise Too Much Money?
We all want to raise capital. The more money we can work with, the faster we can grow our businesses.
That’s true, but getting money too soon can lead to problems.
For example, you may be running a small business that you started with $5,000. You’re showing great ROI and generating $1,000/month in take-home profits. Excited about your results, you attempt to raise $500,000 and promise $100,000/month to your investors.
But have you built the systems that allow for that scale? Will your attention be too diluted to manage the money to the same effectiveness?
Maybe you don’t even have a plan to spend that kind of money! Investors don’t like when you leave it sitting in an account with a 0% return.
If you try to scale, build a team, put processes in place and mitigate unexpected risks too quickly in order to use the money you’ve been given, you may end up with an incredibly fragile company.
3. Are You Outgrowing Your Education?
Sales have multiplied 10X! That’s great, but your skills need to grow along with them.
Nobody wants to sue you when you’re small, but as soon as you have cash in the bank you may become a target. Do you have the correct legal structures in place to protect yourself? Governments aren’t likely to chase you for a $50 tax bill, so maybe you didn’t bother reading the tax code when you started your small business. Ignorance can lead to big fines, fees and back-taxes once you scale up.
Are you going to be an effective manager? Maybe you’re doing well as an army of 1, but can you really build and manage a team who will help you scale? Being thrown into a management position without the necessary knowledge is a painful experience for everyone.
You may be a great captain on a small sailboat but have no idea how to maneuver the Titanic! As soon as your business starts seeing raid growth, ask yourself “What do I need to learn?”
4. Are You Outgrowing Your Willpower?
I met a man in Guatemala City who’s family was in the restaurant business. When they started doing well, his brother started spending. He thought he was invincible and even bought himself a yacht!
Within a few years the yacht was gone, and the restaurants almost went under as well!
Basketball and football players are famous for making millions and going broke a few years later.
50 Cent, the famous rapper, bought one of the most expensive mansions in the United States. Yard-Care alone cost ~$60,000 per month! Just a few years after moving in, he filed for bankruptcy.
Don’t get in the habit of popping Champaign just because your business had a good year. The Rags-to-Riches-to-Rags story is all too common.
Growth IS Good
Business growth is good. We all want to grow our businesses for very good reasons. You just need to be prepared for it.
Growth comes with it’s own set of challenges. More money is at risk than ever before and failure now has the potential to hurt others. You’ve got more responsibility and the stakes are higher!
Make sure you grow along with your business.