Perils of fast growth
Is it possible for a company to grow too fast? After all, growth is something that most companies work very hard to achieve. Indeed, there are instances where companies experience more growth than they can manage. 

As companies grow they often experience change in areas such as the size of their customer base, the scale and complexity of operations, and the number and complement of employees. It becomes increasingly difficult for companies to manage growth the faster it occurs, and as is often the case, the faster they grow the faster the changes occur. By not properly managing growth, businesses risk not being able to fully capitalize on opportunities, or as a worst-case scenario, failing altogether.

In considering the risks of fast growth and strategies to mitigate these risks, it is useful to consider companies - regardless of their industry - as being comprised of six functional areas: strategy, finance, sales and marketing, operations, information technology, and human resources.  

Strategy

During periods of fast growth, companies and their employees can often become so focused on short-term deliverables that they lose sight of long-term goals and objectives. Time and resources are usually in short supply as companies experience rapid growth - but staying true to a clearly articulated strategy is perhaps the most important element for any organization’s success. It is important that companies have a proper business and strategic plan in place to refer to. It is critical for owners and senior management to take the time to stop, review their plans, and determine if the growth being experienced complements and is aligned with the long-term vision for the company. Another common pitfall for companies experiencing fast growth is a tendency to focus solely on internal issues, or to lose sight of the competitive market in which they are participating. Again, a clearly articulated strategy, and the discipline to remain focused on this strategy, can be a company’s most powerful weapon for avoiding growth-related pitfalls. 

Finance

The most important financial consideration for companies during periods of rapid growth is their ability to meet short-term cash requirements. One common mistake of small business owners is using short-term debt to cover long-term assets. When companies use their operating loan or line of credit to purchase long-term assets like equipment, instead of negotiating separate terms or leasing, they limit their ability to manage cash flow. 

Sales & Marketing

A major windfall such as a large new client or an unexpected purchase order, can be extremely fortuitous for companies, providing a surge in growth. However, according to Entrepreneur.com, growth from “windfalls” can also be very dangerous for companies. The danger is in thinking that the short-term surge in growth will be sustainable, when it really isn’t. Companies need to be wary of an order that will require the company to overextend itself or sacrifice quality in order to produce the quantities required. Windfall sales can also have negative impacts on the operations and information technology functions of a company by requiring changes to these areas that are not sustainable. 

Operations

As demand for products or services increase, companies must change their operations through measures such as hiring more staff, purchasing and installing new machinery, or starting shift work in order to keep pace. Each change required by the company introduces an element of risk to quality control, whether it is new employees unfamiliar with processes, newly installed machinery requiring testing, or dealing with new suppliers. Of particular concern to companies should be the surges in growth associated with a “windfall”. An example of this would be a company that has lowered its quality standards in order to increase production capacity for a new customer’s order. The lower standards may result in a loss of existing customers.

Information Technology
The danger within this function lies in the ability of a company’s information technology infrastructure to maintain pace with rapid growth. A payroll system that can’t accommodate additional shift workers who have been added to meet production needs, or an inventory system that does not provide accurate information to your sales team, are a few examples of why a company’s information technology infrastructure must keep pace with its growth to achieve optimal results. 

Human Resources

Losing sight of the impact rapid growth has on employees is a common pitfall. As an employer, you are excited by new opportunities for your company, but may forget to think about what this will mean to your current employees and your potential need for new ones. Inadequate attention to required changes in workload, skill sets, and employee training is a recipe for disaster. To avoid this pitfall, implementation of a change management process can be used to manage the effects that growth will have on employees.

Is it possible for companies to have too much growth? It truly depends on the situation. But by developing  a strategy to mitigate the risks - and by considering the effects growth will have on the six functional areas of your organization -  you will have a better opportunity to enjoy the upside of growth while avoiding the pitfalls.

By Tom Ormiston, Senior Consultant. For more information, please contact your local MNP advisor or Tom at 1.877.500.0795.

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