Growth has traditionally been regarded by academics as the stage of the business lifecycle that follows market entry. Many small companies that were founded during the recent "age of the entrepreneur" have never made it to this next stage, usually due to stagnation or failure. To advance to the growth stage and stay there, all the challenges and changes caused by sustained growth must be well managed, which is no easy task.
Business growth is truly a two-edged sword. When it's controlled and well managed it has the potential of providing tremendous rewards to the managers and shareholders of your company. But when growth is poorly planned and uncontrolled, it often leads to financial distress and failure. Rapid growth for many companies is the only way to survive in highly competitive industries, such as technology, telecommunications and E-commerce. These companies are faced with a choice of either acting quickly to capture additional market share and build brand recognition or sitting on the sidelines and watching others play the game. But do these competitive conditions justify unplanned and unbridled growth, where sound management, legal and accounting principles are disregarded? Certainly not.
Your business's need to grow must be tempered by the need to understand that meaningful, long-term, profitable growth is the by-product of effective management and planning. A strategy that focuses on sensible and logical growth dictates that a balance be created. You must achieve the organizational flexibility to quickly seize on market opportunities, adapt to changes in the marketplace and develop creative solutions for problems that arise within the context of a controlled and well-managed expansion plan. Failure to create this balance will result in a vulnerability to attack by competitors, creditors, hostile employees and creative takeover specialists.
A commitment to properly grow your company will invariably trigger the need for management to undertake greater risks. These risks must be managed from a legal perspective. So, too, must the changes that your emerging-growth business is likely to experience in its structure, products and services, markets and capital requirements. Growth means that you'll be hiring employees, and they'll be looking to your company's top management for leadership.
Growth means that your management will become increasingly decentralized, which may create greater levels of internal politics, protectionism and dissention over the goals and projects that your company should pursue. Growth means that market share will expand, calling for new strategies for dealing with larger competitors. Growth also means that you'll require additional capital, creating new responsibilities to shareholders, investors and institutional lenders Accelerated growth will mean that the risks and changes will occur with greater frequency and with more serious implications.
The requirements and restrictions imposed by the law that affect most business objectives and transactions will typically retard the rate at which your company can grow. The delays caused by legal drafting and negotiation of documents, filings with regulators and meeting statutory requirements, however, are unavoidable and a cost of doing business. Since the law is not likely to go away, take the time to learn the fundamental legal issues that govern your plans and strategies. The specific legal requirements will depend on: the market segments and industry sectors in which your business operates; the exact stage of your company's development; your business's the current and projected capital needs; and the types of barriers that your company must overcome to achieve its objectives.
Why Do You Want to Grow? A key question to ask is, "What is motivating my desire to grow?" For most entrepreneurs, it comes down to fear, greed or ego, as set forth below. Fear. This may be fear of the competition, technological innovation, becoming obsolete, becoming (or staying) unprofitable, losing key employees, rapidly changing marketing conditions, or just be a general fear of being left out or left behind as a company. These fears become the motivator to grow and remain competitive and viable.
These fears may also manifest themselves into specific growth strategies or influence what paths or new markets the company chooses to penetrate. Greed. The desire to be the biggest, the best, the market leader, the most profitable, the fastest growing, or the highest in profile within the industry can be a strong motivator. The focus is on increasing revenues and profits, maximizing shareholder value and maintaining very aggressive rates of growth.
Companies in this mindset are more likely to choose the capital markets or acquisitions as their preferred method of growth. Ego. This is a more dangerous strategy than being motivated by fear or greed. This type of company has a strong need and desire to be loved by its customers and its employees, even at potential cost to its shareholders. It is very focused on building brand loyalty, long-term customer relationships, and strong vendor and distribution channels. It may have a larger marketing and public relations budget than its competitors and is more likely to be a media favorite and household name, even if it is not the darling of Wall Street.
These companies typically enjoy entering into strategic relationships with others and helping to build wealth and are more likely to grow through franchising, licensing, joint ventures or even multi-level marketing. The Challenges of Growing Too Quickly It's natural for a successful business to grow, but some small companies, flushed with early successes, try to grow too quickly. They launch new lines of business, expand into unfamiliar regions, hire layers of employees and sign expensive leases.
When growth is not based on careful planning and efficient use of resources, expansion can rapidly spin out of control. These signs of impending trouble can show up early or late in the process: The decision to expand is based more on instinct than on sound financial analysis, market studies or economic conditions. Servicing the debt you assume to expand begins to consume the added cash flow. You find yourself becoming a stranger to key employees, who have been hired by someone else in the firm. Mounting overhead is squeezing other vital expenditures.
The expansion is generating more media attention or vanity satisfaction for the owner than net profit. Bureaucracy mushrooms: more memos, meetings, manuals and buck-passing. Less business, service and decision-making. How to Evaluate Your Expansion Plans To protect your company from the dangers of unwise or poorly planned growth, run your plans through these checks. Consider the possibility that your company is expanding in too many directions at once, seeking too large a geographical market, too much market share and too many groups or types of customers with too many different products. Sticking to what you do best is often the surest route to growth.
Federal Express doesn't make hamburgers and McDonald's doesn't deliver packages. Carefully assess your motivations. Growth motivated by ego (you "must have" the target company), an excess of cash or an assumption that the company can carry a lot of debt rarely succeeds. Be sure your financial systems can handle the demands of the expansion. That means cash flow, receivables and payables, inventory management, benefits and pension plans, compensation and shareholders' plans. Be sure your current management structure is capable of handling the expansion. For instance, a hierarchical company in which managers have limited autonomy or decision-making responsibility may not be flexible enough.
RPH
Business growth is truly a two-edged sword. When it's controlled and well managed it has the potential of providing tremendous rewards to the managers and shareholders of your company. But when growth is poorly planned and uncontrolled, it often leads to financial distress and failure. Rapid growth for many companies is the only way to survive in highly competitive industries, such as technology, telecommunications and E-commerce. These companies are faced with a choice of either acting quickly to capture additional market share and build brand recognition or sitting on the sidelines and watching others play the game. But do these competitive conditions justify unplanned and unbridled growth, where sound management, legal and accounting principles are disregarded? Certainly not.
Your business's need to grow must be tempered by the need to understand that meaningful, long-term, profitable growth is the by-product of effective management and planning. A strategy that focuses on sensible and logical growth dictates that a balance be created. You must achieve the organizational flexibility to quickly seize on market opportunities, adapt to changes in the marketplace and develop creative solutions for problems that arise within the context of a controlled and well-managed expansion plan. Failure to create this balance will result in a vulnerability to attack by competitors, creditors, hostile employees and creative takeover specialists.
A commitment to properly grow your company will invariably trigger the need for management to undertake greater risks. These risks must be managed from a legal perspective. So, too, must the changes that your emerging-growth business is likely to experience in its structure, products and services, markets and capital requirements. Growth means that you'll be hiring employees, and they'll be looking to your company's top management for leadership.
Growth means that your management will become increasingly decentralized, which may create greater levels of internal politics, protectionism and dissention over the goals and projects that your company should pursue. Growth means that market share will expand, calling for new strategies for dealing with larger competitors. Growth also means that you'll require additional capital, creating new responsibilities to shareholders, investors and institutional lenders Accelerated growth will mean that the risks and changes will occur with greater frequency and with more serious implications.
The requirements and restrictions imposed by the law that affect most business objectives and transactions will typically retard the rate at which your company can grow. The delays caused by legal drafting and negotiation of documents, filings with regulators and meeting statutory requirements, however, are unavoidable and a cost of doing business. Since the law is not likely to go away, take the time to learn the fundamental legal issues that govern your plans and strategies. The specific legal requirements will depend on: the market segments and industry sectors in which your business operates; the exact stage of your company's development; your business's the current and projected capital needs; and the types of barriers that your company must overcome to achieve its objectives.
Why Do You Want to Grow? A key question to ask is, "What is motivating my desire to grow?" For most entrepreneurs, it comes down to fear, greed or ego, as set forth below. Fear. This may be fear of the competition, technological innovation, becoming obsolete, becoming (or staying) unprofitable, losing key employees, rapidly changing marketing conditions, or just be a general fear of being left out or left behind as a company. These fears become the motivator to grow and remain competitive and viable.
These fears may also manifest themselves into specific growth strategies or influence what paths or new markets the company chooses to penetrate. Greed. The desire to be the biggest, the best, the market leader, the most profitable, the fastest growing, or the highest in profile within the industry can be a strong motivator. The focus is on increasing revenues and profits, maximizing shareholder value and maintaining very aggressive rates of growth.
Companies in this mindset are more likely to choose the capital markets or acquisitions as their preferred method of growth. Ego. This is a more dangerous strategy than being motivated by fear or greed. This type of company has a strong need and desire to be loved by its customers and its employees, even at potential cost to its shareholders. It is very focused on building brand loyalty, long-term customer relationships, and strong vendor and distribution channels. It may have a larger marketing and public relations budget than its competitors and is more likely to be a media favorite and household name, even if it is not the darling of Wall Street.
These companies typically enjoy entering into strategic relationships with others and helping to build wealth and are more likely to grow through franchising, licensing, joint ventures or even multi-level marketing. The Challenges of Growing Too Quickly It's natural for a successful business to grow, but some small companies, flushed with early successes, try to grow too quickly. They launch new lines of business, expand into unfamiliar regions, hire layers of employees and sign expensive leases.
When growth is not based on careful planning and efficient use of resources, expansion can rapidly spin out of control. These signs of impending trouble can show up early or late in the process: The decision to expand is based more on instinct than on sound financial analysis, market studies or economic conditions. Servicing the debt you assume to expand begins to consume the added cash flow. You find yourself becoming a stranger to key employees, who have been hired by someone else in the firm. Mounting overhead is squeezing other vital expenditures.
The expansion is generating more media attention or vanity satisfaction for the owner than net profit. Bureaucracy mushrooms: more memos, meetings, manuals and buck-passing. Less business, service and decision-making. How to Evaluate Your Expansion Plans To protect your company from the dangers of unwise or poorly planned growth, run your plans through these checks. Consider the possibility that your company is expanding in too many directions at once, seeking too large a geographical market, too much market share and too many groups or types of customers with too many different products. Sticking to what you do best is often the surest route to growth.
Federal Express doesn't make hamburgers and McDonald's doesn't deliver packages. Carefully assess your motivations. Growth motivated by ego (you "must have" the target company), an excess of cash or an assumption that the company can carry a lot of debt rarely succeeds. Be sure your financial systems can handle the demands of the expansion. That means cash flow, receivables and payables, inventory management, benefits and pension plans, compensation and shareholders' plans. Be sure your current management structure is capable of handling the expansion. For instance, a hierarchical company in which managers have limited autonomy or decision-making responsibility may not be flexible enough.
RPH
