Dangers of Rapid Business Growth and What to Do About Them

Once your business becomes profitable, your next goal is probably to see it grow. If that growth comes too fast, though, you could run into some unexpected problems. Here are the top six problems caused by rapid business growth and advice on how to handle them.

The growth and expansion phase is an exciting time for any small business. The primary goal of a startup is to get customers, deliver the product or service, and reach the break-even point as quickly as possible. According to conventional business plans, once the break-even point is achieved, profitability should follow. For some small businesses, though, another goal is rapid growth, and that can be a problem. Businesses often underestimate the intense pressure that accompanies rapid business growth.

1. Your business may face a cash flow crunch as it deals with increased demand for your products or services.

The costs of running a fledgling business can be difficult to manage, especially coming on the heels of cash outlay to open the business. At this point, your business may be surviving on credit as you try to grow sales and revenues. As you push for higher sales, expect monthly expenses to grow and possibly exceed your monthly revenues. If your collections are on track, that’s not an insurmountable problem. However, a cycle or two of delayed collections could leave your business in that proverbial spot between a rock and hard place.

To keep cash flowing, anticipate the cash crunch with a realistic plan that accounts for delays in the collection of receivables. Prepare a back-up plan for raising cash from personal sources or through a pre-approved line of credit from your bank. Diversify your client base if possible. If you depend on one big client as a revenue source, you’re leaving your small business vulnerable to the whims of that client.

2. Operational inefficiency because of uncontrolled expansion will cost your company time, money, and other resources.

When your business starts growing quickly, you’ll be forced to improvise to manage increased demand for your products or services. When business buildup happens too fast and too soon, you won’t be able to adhere to your perfect business plan, where your operational processes flow smoothly. You may be pressured to hire more people sooner than you anticipated, and you may not be skilled in choosing the right people or you may not have the time to redesign your workflow to accommodate increased demand. While higher demand should lead to economies of scale, this may not happen if rapid growth results in any of these problems:

Your new employees are poorly trained.
You can’t manufacture or buy inventory quickly enough to fill orders.
You haven’t accurately determined the cost of delivering your products or dealing with customers.
Your customer service isn’t up to par.

Manage the ordering system and the order fulfillment process so that you won’t end up over-promising to your customers. If possible, talk to owners of other fast-growing businesses to see what problems they experienced so you know what to plan for. Ask advisors at a local Small Business Development Center (SBDC) or Service Corps of Retired Executives (SCORE) chapter for advice. Their services are free, and they may be able to help you be aware of problems and solutions for your type of business. Remember, too, that it’s better to turn down customers than risk annoying them if you can’t deliver on time or can’t deliver quality goods and services.

3. You start receiving a lot of negative feedback due to customer service issues.

A few customer complaints occasionally are part of doing business, but when negative feedback starts to pile up, it’s an indication that you’re not meeting client expectations. This could be due to lack of personnel to manage client interactions. It could also hint at other issues if your staff is spread too thin and is cutting corners to meet customer demand.

Clients who provide positive feedback are bound to be repeat customers. A host of negative feedback could indicate that you are unable to cope with the market’s expectations in terms of the delivery because you are overwhelmed. Make sure to monitor your feedback system regularly, keep an eye on social media mentions of your business, and have a plan in place for handling both positive and negative feedback.

4. Your employees are overworked, putting in long hours and getting ready to jump ship.

A vibrant workplace inspires employees to work their hardest, but when work consumes most of their waking hours, you run the risk of losing your trained and trusted employees. You may find that your business is a revolving door of employees in spite of generous compensation and benefits.

Pay attention to the evolving workplace culture as your business grows. Find the time to discuss quality of life issues during staff meetings. Make sure to address personnel matters as needed, but do it expeditiously.

5. You outgrow your office space.

As your business grows the number of employees, the desks, filing cabinets, and amount of inventory you keep on hand are likely to increase, too. If you outgrow your office space and move to a new location before your lease is up, you could be responsible for continuing to pay the lease until a new tenant is found for the space.

The best way to avoid this problem is to plan for it when you’re signing a lease for commercial space. If you’re just starting out, you may want to opt for an executive suite or space in a business center that you rent by the month or year. If your business is at the point where it makes sense to sign a more permanent lease, then you’ll probably want to limit the term (number of years) for your lease to three years if you expect to be growing more. And, if possible, have your attorney negotiate an “out” clause in the lease. This is a clause that would spell out terms under which you could end the lease early, such as by giving the landlord three months’ written notice.

If you’re already in a lease that doesn’t have an out clause and you need more space, ask your landlord if they have available space and can work with you. If they don’t or you don’t want to stay in the same location, see if your lease will let you sublet your space to someone else, and under what terms.

6. Your ability to lead and manage falters as your work processes come under pressure from increasing demand.

As the business grows, the founders eventually transition to a leadership role, delegating most of the operational decisions and functions to someone else. However, growing too quickly could make you lose your focus on essential functions and take on too many tasks, delivering below-par outcomes that lead to frustration within your company and disappointment for your clients. The problem escalates when internal business systems and procedures are mishandled due to everyone being overworked. Inadequate control over budgeting, inventory management, marketing, and sales programs could derail your success as a business.

Outsourcing some functions is a viable method to delegate some non-critical administrative functions. This arrangement can be transitional or permanent, depending on your needs, but it’s important to scale your processes to align with your growing business. No one is an expert in everything, so this may be the phase where you bring in the best personnel you can find to help guide your company through the changes required to become a bigger and better business.

According to data from the Bureau of Labor Statistics, about half of startups survive the first five years while a third survive for at least 10 years. The survival trend has not changed much through the years, and businesses that are prepared to handle rapid business development and expansion are most likely to thrive.

Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.