Growing Pains in the Small Business

Success, they say, is its own reward. 

In the competitive world of small business, this must be doubly true – financial benefits aside, ‘making it’ is even more satisfying if you have established and grown you business from the outset.

But with success comes growth which, if not managed properly, has a tendency to quickly put a stop to a small business’ gains.

It is natural to want to increase the size of your business once you achieve some degree of success. However, you should expect certain difficulties along the way.

A key challenge arises when a small business grows to the point where one person is no longer able to manage the company alone, according to Alistair Gordon, a partner in consulting business MentorVest Partners and former Managing Director of Strategic Publishing Group.

“The first difficulty is there appears to be a size at which a company is relatively easy to run … where one person is making most of the decisions, and that size is probably ten, 11, 12 or 13 people,” says Gordon.

“If you add a couple of people up to about 16 people, suddenly it’s not possible for one person to make all the decisions any more, and all the management systems that previously ran the company no longer work.”

The fact that many small business owners leave the implementation of a growth strategy to a late stage can compound this difficulty.

“Most entrepreneurs take too long to start training their employees to take over responsibilities,” says Gordon, who started at Strategic Publishing Group in 1992 with four team members, ending up eight years later with 150 colleagues in nine locations around the world.

“[Small business owners] leave it too late, and then they give people responsibilities without training them properly, and without being there to hold their hand when things go wrong the first few times,” he adds.

“You quite often find that entrepreneurs snatch back the responsibility because the [other team members] haven’t handled it properly.”

After two or three false starts on account of an unprepared team, Gordon says that he now makes sure he implements training as early as possible.

Added to the importance of full preparation is the need to properly forecast your small business’ cash flow.

Gordon says that unrealistic revenue expectations can be fatal to a small business, “even if it is doing well.”

“The costs almost always exceed what the expectations of cost are, and the revenue takes twice as long to arrive as everybody anticipated, which normally creates a cash flow problem.”

Here, Gordon’s advice is to make sure you shore up your current business base before trying to expand.

“Prior to growth, it is really about battening down the hatches and making sure that your [revenue] is solid, and that it’s going to be there after you’ve gone off and spent a year growing the business.”

Pessimism, at least in controlled doses, can also be helpful to keep small business growth in check.

“Be really pessimistic about revenue, not necessarily how much revenue will come in, but when it will come in,” Gordon advises.

“Probably take the costs that you’ve done and add 30 percent to them, and ask yourself, ‘If the costs are way over and if the revenue takes twice as long to come in, will my business survive?’”

A comprehensive business plan which takes account of market demand is also important to properly balance growth, says David Meier.  “Remember that the process of business growth is ongoing. For this reason, you are encouraged to include both long-term and short-term growth strategies in your plans,” Meier says.

“By continuously being attentive to growth opportunities, you can avoid the dual risks of experiencing a reduction in your business’ sales volume and a corresponding loss of profitability.”

Finally, don’t try growth on your own. Making the most of your fellow team members is a sure way of managing your business’ expansion – and most important of all is your accountant, says Gordon.

He says a good accountant will keep in check the temptation to push for growth when to do is perhaps premature.

“In a growth business, the accountant is probably the most vital person, because the manager 9 times out of 10 wants to grow and will not be stopped from growing.”

A good manager-accountant relationship is one based on cooperation and an equal power balance, Gordon says.

“Absolutely the key success factor in my business was that when the accountant said, ‘We don’t have the money for this’, the management had agreed to listen and take appropriate action.

“If we hadn’t done that we would have gone out of business.”

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Copyright 2002, RAN ONE Inc. All rights reserved. Reprinted with permission from www.ranone.com.