Every business depends on growth to succeed. That's why CEOs and business owners focus so much of their daily efforts on how best to grow their enterprise. But there’s also risk in too much growth—that's why managing business growth is essential.
Whether you define growth as making key investments, identifying and penetrating your core customer base, or scaling operations to see a profit, “growth is also about slowing down,” say Karl Stark and Bill Stewart, contributors to Inc. If your business experiences too much growth or it grows by acquiring the wrong type of customers, the result can be failure—just as surely as if there was no growth at all. Managing business growth takes some finesse.
Stark and Stewart are managing directors and co-founders of Avondale Strategic Partners, a Chicago-based advisory firm that focuses on growing companies. When strategizing about managing business growth for your company, they suggest keeping a few key factors in mind.
Understand Your “Order-to-Cash” Cycle
In most cases, businesses need some level of cash outflow before cash starts coming in. Savvy entrepreneurs understand managing business growth means analyzing the impact growth will likely have on their cash needs beforehand and trying to predict when cash will likely run out.
Remember, you have to build a product before you can sell it, and then you generally must wait to get paid.
Without proper analysis, this “order-to-cash” cycle can cripple a business before it gets off the ground. As Stark and Stewart note, “The easiest way to fail is to run out of cash.”
Know What it Costs to Acquire Customers
Each customer acquisition costs money. If, for example, your strategy entails offering discounts to get new customers, you lose money on each new customer and only see a profit if and when they become repeat customers. The risk in this strategy comes, say Stark and Stewart, “if you acquire the wrong customers—those who won’t buy from you again—and are never able to return a profit.”
Managing business growth in this case entails making sure you understand how you're going to go about acquiring customers, what the cost will be, and when your customers will become profitable.
Managing Business Growth Means Matching Funding to Your Growth Plan
Some budding businesses wait until the last minute to secure a line of credit or equity that aligns with their growth strategy. This is a recipe for failure. As Stark and Stewart say, “when you need the cash, you need it immediately, but fundraising takes a long time.” Securing growth capital before attempting to make a sale is always best.
Different types of businesses and different circumstances comes with particular growth risks. You have to go about managing business growth by identifying and understanding those risks in order to mitigate them and lessen their effect. Then it’s possible for growth to occur “ at a rate that creates a sustainable business.”
What are you doing to avoid running out of cash?
