In mid-2016 the Wall Street Journal published an article titled, “Demand Swells for Chickens That Grow More Slowly.” The gist of the article is companies (Whole Foods, Starbucks, and others) believe customers will pay more for products from birds that grow slower (than those full of hormones and other additives).
This is a great analogy to businesses and their growth. Do you want a business with slow, fast, or rocket ship growth? Naïve people instantly thing they would want rocket ship growth, not realizing the pitfalls. Smart people, smart business buyers, understand slow and steady is the best if the company can achieve fast growth with better leadership, marketing, and direction.
See a (suddenly) fast growing company and a buyer will wonder if that grow is sustainable. Did she push harder right before selling? Did he cut deals to increase sales? Is it a spike or a trend? Buyers are skeptical and rightfully so. And after perusing the Internet business listings they feel they’ve seen just about every outrageous claim about a lousy business (to make it appear to be a good, solid company).
So, what are the top pitfalls to a super-fast growing company. Here are three:
- Growth sucks cash. The faster you grow the more cash you need because you pay your people weekly, your rent monthly, and your customers may pay you in 45-60 days. I’m in retail you say and I get paid at the time of the sale. Well, what about all the inventory you now need to keep up with demand?
- People, good people, are scarce in today’s economy. A business owner recently told me he could sell a lot more product if he had the people to handle the load. Raising the minimum wage level doesn’t raise the skill level. Good people are hard to find and not delivering to your customer is a kiss of death.
- Without proper leadership, management, and attention to detail the company can spin out of control. For example, it’s a lot harder to manage the logistic of 22 crews in the field versus eight. A manufacturing company I worked with took on every piece of business they could find, only to see their margins deteriorate as their employees were overworked and stressed.
Manageable growth is what you want as it tends to be more profitable growth.
“When action is needed, optimism, even of the mildly delusional variety, may be a great thing.” Daniel Kahneman