If you are considering trying to grow your business to beat the economic pressures of the down economy or are caving to the popular “grow or die” influence of the media, Ed Hess asks that you think before you grow.
Most business owners accept without question the belief that growth is good, that bigger is better and that the healthy vital signs for a business include growth that is continuous and smooth, says Hess, a professor at the University of Virginia’s Darden Graduate School of Business. Based on his research, however, Hess has found that above-average, long-term growth (five years or more) is an exception, rather than the rule, and occurs in less than one in 10 of the companies he studied.
Here are some of the self-inflicted wounds that premature growth can leave on your business:
• Growth can create new business risks.
• Growth can force you into the big leagues before you are really ready.
• Growth can strain your operations.
Hess’ solution for overcoming the risks associated with growth is a concept he calls Smart Growth. It is a strategy that requires companies of all sizes to follow the four P’s of a proper growth strategy:
1. Plan for growth before kicking the strategy into gear. Think about how growth will change what both you and your business will need to do. What new processes, controls, financing, technology and people will you need to achieve growth, and sustain a new level? And what will it all cost?
2. Prioritize what changes or additions to the business have to be made to accommodate the growth. This is a way to lower the risk by making only the essential investments first, so you don’t deplete your cash reserves before new income starts rolling in.
3. Establish new processes to ensure there are adequate financial, operational, personnel and quality controls for a bigger business. These are like dams on a river: if the water starts flowing faster and with more volume, those dams need to be re-engineered to handle it. But these are also things many small-business owners have trouble with because they come from an entrepreneurial mindset and tend to react rather than plan ahead.
4. Pace your growth so you aren’t overwhelmed. Growth can be exciting, but it’s also stressful. If you underestimate the need for effective change management, and for a phased approach, you increase chances of failure. •
Daniel Kehrer can be reached at
editor@business.com.
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