Rocketing growth of your company can cause its bankruptcy. Such a prompt rise is one of the mistakes often made even by experienced managers at the stage of product launch in new or existing markets. Read more about this in my posting Product Launch — 5 Common Mistakes.
Today I decided to dig this topic a bit deeper and prepared for you the top-5 problems inflicted by the rapid growth of the company.
1. Profit Decline and Cash Flow Shortage
When the demand of your product grows rapidly, you will inevitably come across a situation where you will constantly need extra cash to ensure growth of your business, for example:
- You will need more money for your staff (overtime payments, recruiting expenses, new employees’ salaries, newcomers training cost);
- Your inventory will inescapably increase, and this will require additional funds for purchase, increase storage costs, you may even have to rent a new warehouse;
- Production capacity of your factory may not be enough and you will have to look for a new supplier, and this creates additional expenses too;
- And so on.
Thus, you will have to spend all your profit and you will also have to borrow more money in banks. In such a situation unforeseen expenses or unexpected stop of growth caused by external causes can bankrupt your company at once.
2. Product Quality Reduction
If production capacities in the current factory are exhausted due to your rapid sales, then the transfer of production to a more powerful factory (or placing additional orders at a new factory) is required, as a rule, quality and/or timing falls, and other problems possible too. For instance, it will take additional resources (time, personnel and money) to set-up technological operations and business processes of manufacturing of your product in a new factory. It will require also additional costs for the external QA/QC¹ team.
By the way, quite often companies neglect external quality control when placing their orders at factories, relying on moral and ethical qualities of its business partners, as well as abiding in the illusion about the fact that in the age of social networks the factory will not jeopardize their own reputation. Well, and of course, to save some money. So, such an illusion or money saving decision can be a big mistake: in my practice, there was a situation when, despite all the steps taken, the first batch was of an inadequate quality and had to be returned to the factory, the client had to file a lawsuit because the plant insisted that the quality of the supplied products corresponded to "industry quality standards".
¹ QA\QC – quality assurance and quality control.
3. Problems with Personnel
When your business is skyrocketing, it notably increases the workload of each employee and all your team as a whole. This usually results in stressing them out, decrease in morale and conflicts inside your team. Rising workload, after all, may force your team members to decide to leave, thus increasing the burden on the remaining team members. This, in turn, requires you to invest more time and effort to find, recruit and adapt new staff, which inevitably will reduce your focus on achieving the company's goals.
4. Customer Discontent
Rapid business growth means that quantity of customers grows faster than your company serving capability. It means that your customer service department is not able to serve so many customers. It takes a certain time to hire new stuff and teach them. So, you will lose your customer focus and gradually the quality of service will deteriorate.
5. Your Own Dissatisfaction
Eventually, your own work as a top-manager and shareholder will turn into endless and desperate crisis management.
Growth is good only when it is planned and controlled. Simultaneously with the growth of your business (your sales) all the necessary company infrastructure should grow, resources of your organization should increase proportionally too, as well as the qualifications of your employees. Besides, your organization structure and hierarchy, as well as business processes and procedures require changes too. In other words your company needs organizational change to be able to meet your new strategic goals and vision. If you are looking for the wise advice on managing your organizational change contact TWA Consulting right now.