Are You Ready for Growth?

What would happen if your business suddenly experienced rapid and significant growth?  My guess is that many of you are thinking that this would be great news.  But – don’t be so fast to welcome it.  

  • Would you and your organization be prepared, and have a plan? 
  • Could you manage that growth effectively and profitably?
  • Do you have enough cash to support and fund it?

There are three key challenges that come with growth, including Management, Cash, and Operations.  All must be planned and managed properly, so that the business can continue to operate profitably through this period, and reap the reward.   Each area is briefly described below, including some questions that you may want to consider in planning for your next growth phase.

Management 
As a business grows, the activity levels and complexity increase significantly, and need to be managed and controlled properly.

  • How much activity and complexity can your current Management team handle effectively, without losing control of the business?
  • At what point will your organizations’ internal capabilities,capacity, and resources become overwhelmed with the increased pace, resulting in the operational issues described below?
  • Is your organization’s team, capabilities, capacity, and culture, capable of absorbing the increased activity and complexity, and to what level?

Cash
Growing businesses require more cash, especially in the early stages, to fund and support the higher business level, as receivables and inventory rise, and the cost of doing business increases over time. 

  • How much cash will be required, and will the business have the ability to generate these requirements?
  • If not, will the business be able to qualify for additional funding to meet these requirements?
    •  Note: If the business is not able to obtain additional cash, it will need to make a decision regarding how much additional growth, if any, it can take on without experiencing ongoing cash “crunches”.
  • What investments and costs will be required to support the increased business and activity, and service customers efficiently and effectively? 

Operations
 The higher activity level, and complexity, will normally require increased capacity and capabilities, and more effective, streamlined processes.  If these are not in place, the business will experience increasing customer, service and quality issues, and higher costs.

  • Can your existing systems and processes handle the increased activity?
    • Note: In many instances, these systems and processes have grown with the organization over time, and may have a number of “band-aids” in place.  As the operation is stressed, these “band aids” will start to pop off, one by one, leading to further breakdowns in service and quality.
  • Will you need more staff?  How many, and with what capabilities and experience?  How will you train them.and how long will it take for them to become effective?
    • Note: In many situations, hiring is reactive and after the fact, leading to poor decisions, high turnover, and increased operational issues early on.

Those businesses that have planned properly, and prepared, will take the growth in stride, and continue to grow profitably.

The businesses that are unprepared will find themselves drowning in activity, out of control, and unable to cope with the requirements, demand, and complexity of the business.  As service and quality problems increase, customers will be disappointed and leave, revenues and cash flow decline, costs increase, and profitability disappears.  If corrective actions are not taken quickly, the business could enter a death spiral downward, and eventually close.

Be careful of what you wish for, and plan now for your next phase of profitable growth. 

If you have any questions, or would like to discuss your organization’s specific issues, please call us at (727) 637-4666, or email me directly at Don@HuttlinAssociates.com.

“Whatever made you successful in the past won’t in the future.”  –  Lew Platt, CEO, Hewlett-Packard
“You can’t have a better tomorrow if you are thinking about yesterday all the time.”  –  Charles Kettering
“Failing to plan is planning to fail.”  – Alan Lakein

Organizations Need Profitable Growth

There is a saying that “an organization can’t cut its way to profitability“, at least on a sustainable basis.  While this is certainly true over time, many organizations have implemented internal cost reduction programs over the past several years to improve profitability in the face of the poor economic and market conditions.  Although the majority of these programs were probably overdue, and have been effective, many organizations are finding that there is not much more that can be done internally without sacrificing service, efficiency, and quality.

As a result, organizations must now look outward, and improve their profits through profitable revenue growth.  However, this growth must be planned, managed, and controlled in order to make it sustainable over time, and generate the desired results.

One of the more popular, and potentially dangerous, strategies, is growth for growth’s sake, using the tactic of cutting prices, and hoping to “make it up on the volume” to improve profitability.  While there may be some special situations where this tactic may actually work (at least for a period of time), in most instances, the increased revenues will not be enough to offset the lower profit on each sale, reducing overall profitability over time.  In the worst case, some organizations will continue to cut prices, further reducing profits, eventually threatening its survival.

The dangers associated with this strategy include the following:

  • While the lower prices may, in fact, generate more revenue in the short term, this revenue may not be profitable for the organization due to the higher costs, and increased activity required to support it.
  • In many instances, cutting prices will result in an overall decline in market prices, setting the expectation of customers for those lower prices.  Once this happens, it generally takes a long time to get prices back up to reasonable levels.
  • Finally, if the growth occurs too rapidly, and is not profitable, the organization may find itself without the resources or financing required to support the growth, and unable to manage the activity properly.  This will lead to service and quality breakdowns, and the potential for future revenue declines.

Generally, no organization can be successful in the long term with this strategy.

Profitable, and sustainable, growth results from a strategy that is well designed, managed and controlled.  In order to accomplish these objectives, the  organization should ask itself several key questions:

  • Where will the new profitable business come from?
  • Do we know our real costs, and are they competitive?
  • What are the additional costs and resources that will be necessary to support the future growth?
  • What is the real profitability of our current customers, and/or market niches?
  • Who are our most profitable customers, and can we increase our share of their business?
    • Are there more potential customers like them in our market?
  • Can our existing processes and procedures handle the increased activity without a breakdown?
  • What differentiates us in the market, so we are not competing just on price?

The answers to these questions may lead to even more questions, all of which will assist you in defining your profitable growth strategy, the requirements of that growth, and how best to manage and control it over time.

Those organizations that can define and execute a clear strategy for profitable growth, and manage and support it properly, will sustainably improve their profitability.

If you have any questions, or would like to discuss your organization’s specific issues, please give us a call at (727) 637-4666, or email me directly at Don@HuttlinAssociates.com.

“Without continual growth and progress, such words as improvement, achievement, and success have no meaning.” – Benjamin Franklin

“Companies that grow for the sake of growth, or that expand into areas outside their core business strategy, often stumble. On the other hand, companies that build scale for the benefit of their customers and shareholders more often succeed over time.” – Jamie Dimon

“Growth is never by mere chance; it is the result of forces working together.” – James Cash Penney