Growing companies face a range of challenges. As part of the growth of a business, different problems and opportunities require different solutions – what worked a year ago might now not be the right approach. Too often, errors that could have been avoided transform a company with great potential as a loser.
Recognizing and overcoming the common pitfalls associated with growth is essential if your business is to continue to grow and prosper. Essentially, you must ensure that the actions you take today do not themselves create additional problems for the future. Effective leadership will help you make the most of opportunities, creating sustainable growth for the future.
This guide highlights the specific errors and risks that typically affect developing businesses and highlights what you can do about it.
- Follow the Market
- Plan ahead
- Treasury and financial management
- Problems solving
- Appropriate Systems
- Competencies and Attitudes
- Welcoming change
FOLLOW THE MARKET
Market research is not something you do only once, when you start your business. Trade conditions are constantly changing; your market research must therefore also be continuous. Otherwise, you run the risk of making business decisions based on outdated information, which can cause the company to fail.
The more you succeed, the more the competitors notice – and react – to what you are doing. A market-leading offer one day might not be better than average a few months later. Apparently loyal customers can quickly find other suppliers that offer a better offer.
With the aging of products (and services), sales growth and profit margins are declining. Understanding where your products are in their life cycle can help you figure out how to maximize overall profitability. At the same time, you must invest in innovation to establish a flow of profitable products to market.
Source of information
Published information can provide useful insights into market conditions and trends. As a developing company, your own experience may even have more value.
You need to be able to develop a thorough picture of what customers want, how they behave and which marketing approach works best.
Taking the time to speak to key clients is paying off. Your suppliers and other business partners can be important sources of market information. You should encourage your employees to share what they know about customers and the marketplace. Effective IT systems can also facilitate the sharing and analysis of key information, such as customer purchasing behavior and preferences.
You might also want to do an additional study, for example, to test the customer’s reaction to a new product. You could do it yourself, or use a freelance researcher or market research agency.
The plan that was right for you a year ago does not necessarily suit you now. Market conditions are constantly changing; so you need to revisit and update your business plan periodically. See the guide to how to monitor the market.
As your business grows, your strategy must evolve in order to respond to changing circumstances. For example, it is likely that you will no longer focus on getting new customers, but on building profitable relationships and maximizing growth with existing customers. Existing business relationships often have greater potential for profitability and can also provide a reliable cash flow. New relationships can increase turnover, but profit margins may be lower, which may not be sustainable. See the Treasury and Financial Management page of this guide.
On the other hand, each company must be attentive to new business opportunities. There are obvious risks to rely solely on existing customers. Diversifying your customer base disperses these risks.
Following the same business model, but on a larger scale, is not the only path to growth. There are other strategic choices, such as outsourcing or franchising that could offer better growth opportunities.
It is important not to assume that your current success means that you will automatically be able to take advantage of these opportunities. Every major decision requires planning, in the same way as starting a new business.
Be careful not to be too opportunistic; ask yourself if the new ideas match your strengths and your overall vision of the direction the company is taking. Keep in mind that every new development brings its risks of change. It is worthwhile to periodically review the risks you have faced and develop contingency plans.
TREASURY AND FINANCIAL MANAGEMENT
A good control of cash is important for any business. For a growing company, this is crucial; monetary constraints may be the biggest factor limiting the growth and multiplication of account transactions can be fatal.
The best use of your finances must be a key element in business planning and in evaluating new opportunities. With limited resources, you may have to miss out on promising opportunities if pursuing them meant draining your core business from critical funding.
Each working capital item needs to be carefully monitored to maximize your available cash. Effective credit management and tight control of outstanding debts are essential. You can also consider getting financing regarding commercial debts.
Good inventory control and efficient supplier management are becoming more and more important as the company develops. An obsolete stock inventory could become a problem requiring periodic purges. You may want to work with suppliers to reduce delivery cycles, or choose suppliers and systems that can support just-in-time delivery.
Planning in advance helps you anticipate your financial needs and organize appropriate funding. For many growing companies, a key decision is to use outside investors to provide the equity needed to support further expansion.
New firms often operate in perpetual crisis mode. Each day brings new challenges that need to be addressed urgently and management spends most of their time solving problems.
As part of growing your business, this approach simply can not work. Although a short-term crisis is always an emergency, it may not be as important as other things you might do. Spending time to calm an edgy customer could help protect this relationship but instead putting emphasis on recruiting the right vendor could lay the foundation for significant new sales for years to come.
As part of growing your business, you must also be alert to new issues and priorities. For example, your business could be increasingly at risk if you do not take steps to ensure that your intellectual property rights are appropriately protected.
If you focus on individual marketing campaigns, you may need to allocate more resources to your brand’s development.
Identifying key growth factors is a good way to understand what needs to be prioritized.
A disciplined approach to management focuses on managing employees, developing your management team and developing your business strategy. Instead of treating each problem in isolation, you develop systems and structures that facilitate its further processing.
All businesses produce and rely on large volumes of information: financial records, customer interactions and other business relationships, employee information, regulatory requirements, and so on. It is too much to follow up on, let alone to use them effectively, without the appropriate systems.
Responsibilities and tasks can be delegated as your business grows, but without robust information management systems, you can not manage effectively. The more your business grows, the more difficult it is to ensure that information is shared and that different services work together efficiently. Setting up the right infrastructure is an essential part of helping your business grow.
Documentation, policies and procedures are also becoming increasingly important. The informal character that can work with one or two employees and a handful of customers is simply no longer possible in a growing business. You need appropriate contracts, clear general conditions, effective hiring procedures, and so on.
A large number of growth firms believe that the use of established management standards is one of the most effective ways to introduce best practices. Quality control systems can represent an important part of the motivation for improvements and can convince more important customers that you are reliable.
Investing in appropriate systems represents a paying investment both in the short and medium term. You benefit every day from more efficient operations. If you decide one day to sell your business, demonstrating that you have efficient and well-operated systems will be an important part of proving its worth.
COMPETENCIES AND ATTITUDES
Entrepreneurs are the driving force behind the creation and development of new businesses. Too often, they are also people who prevent them from moving forward.
The abilities that can help you start a business are not the same as those you need to help it grow. It is vital not to delude yourself and over-evaluate your own abilities. It is likely that you need training to learn the skills and attitudes needed for someone who leads growth.
In order to develop your business, you must learn to delegate appropriately, trust your management team and give up the daily control of every detail. It is too easy to stifle creativity and motivation because of too much interference. As the business becomes more complex, you also need to develop your time management skills and learn to focus on what is really important.
As your business grows, you may have to hire third parties to help you. You will have to delegate responsibility for different areas to various specialists, or appoint one or two directors without an executive mandate to strengthen your board of directors. When you begin to tackle a new opportunity, a person with experience in this activity can prove to be vital.
For many successful entrepreneurs, learning to listen – and accept – advice is one of the toughest challenges they face. But it can also be essential if you want to make the most of your opportunities. Some contractors, recognizing their own limitations, appoint another person to act as general manager or president.
Complacency may prove to be a major threat to a developing company. It is very imprudent to assume that you will continue to succeed only because you have succeeded in the past.
Revisiting and periodically updating your business plan can help you remember changes in market conditions and the need to respond to them.
See the page in this guide for long-term planning.
An updated plan helps you identify the steps you need to take to change your business and how it works, for example:
- Change for suppliers who can grow with you and meet your new priorities. As your business grows, consistent quality and reliability can be more important than simply getting the cheapest offer.
- Renegotiate contracts to take into account the increase in volume.
- Train and develop employees. Your own role will also evolve as the company develops. See the guide to skills and attitudes in this guide.
- Make sure you stay up to date about new technologies.
You must be totally committed to your strategy, even if it takes you out of your comfort zone. This can mean making tough decisions, for example, dismissing employees or leaving suppliers with whom you have become friends. But unless you are prepared for this, you risk putting your business in great competitive danger.