Expansion is great – just make sure you’re ready for it

 

What sort of systems does a small business need in place in order to cope with a sudden surge in demand? There are a bunch of basic things that can be done and they mostly revolve around being set up from day one as if you were a big, replicable business (as espoused by Michael Gerber in The E-Myth). Examples include being really efficient (using technology as an enabler), having contract or out-sourcing resources to call on, and having a slick – or, even better, automatic – system for bringing on board new customers. While these basics are great, what’s more helpful is foreseeing this sudden surge approaching. Sales funnel reporting is great for this because it gets you into a future-focused state and shows you the positive blip on the radar before the “transactions” actually start. Sales funnel reporting is essentially figuring out where your sales are coming from in the future and discerning if your leads are growing faster than normal. Using this system, you can figure out what it is your company needs to do to cope with the new demand.

 

How can it harm a business to grow too fast? A classic downfall of growing too fast is the cashflow issues it can bring – and we all know cash is king. Sadly, some small businesses actually fold in a high-growth phase as they run out of cash trying to meet the demand of so many new clients. The moral is to have detailed and reliable cashflow forecasts. It is also imperative to make sure that your growth is “profitable growth” ie. it is adding to the bottom-line, so no super discounting to grow fast or over promising for a low price. The other big concern with growing too fast is having your standards drop. If an increase in demand has you pushed beyond what you can handle, your new customers won’t have a good experience. Unfortunately, negative experience means negative word of mouth, so not only have you lost those new customers, you’re also losing potential customers. And those existing, previously loyal followers of yours? You’ve probably ignored them in your attempt to (poorly) handle the new ones, so they could quite well be unhappy and leave you too, and there goes your business!

 

What situations have you seen where a small business has found it difficult to handle a growth spurt? If cash is tight and growing means having to pre-invest in making stock or taking on resource, a growth spurt can make for a challenging time for a small business. Beyond cash, the other situation I see from time to time is a business owner struggling because they haven’t invested in quality staff. With most small businesses, the business is 95 per cent reliant on the business owner and they are incredibly active in far too many day-to-day things. Working 24/7/365 may have worked up to this point, but it won’t cut the mustard if your business suddenly expands and you can’t delegate. To handle growth, you need competent and capable staff. This means paying more than the minimum wage often. It can be a brave move, employing the best people (often at the best pay rate) before the growth happens, but it’s a vital one. As Theodore Roosevelt said, “The best leader is the one who has sense enough to pick good people to do what he wants done, and self-restraint enough to keep from meddling with them while they do it.”

 

Have you seen a small business become a medium-sized one thanks to growth in demand? How did they manage this? Yes, I see it often and have learned a lot from clients who achieve this. The common thread I notice is that each business owner would function at the “best practice” level. This means they had some time beyond the day to day focus to ensure their business was set up for growth as well as the right reporting systems to know, real time, whether the business was handling that growth as it occurred. Business owners who successfully make the transformation from small business to medium-sized business are often good at keeping their ear to the ground to ascertain how customers are enjoying (or not) their dealings with their company in its high-growth stage. Instead of being surprised that customers are leaving in their droves because they feel the service has become rubbish, they’d already be aware it was trending down and would have proactively done something about it. They had really good exception reporting set up so that when one part of their business wasn’t performing – and was impacting on other parts – they knew about it yesterday, not tomorrow. If you handle growing demand in a world-class manner, your business will boom – multiplying word of mouth and natural inertia will have you in the same league as your medium-sized competitors before you know it!

 

Remember to contact Zac for business coaching…

An article written for the NZ Herald, July 29: http://www.nzherald.co.nz/small-business/news/article.cfm?c_id=85&objectid=10904636