Rapid Growth Often Equals Bankruptcy

It’s sad, but it’s true. Rapid growth in your business is very exciting, right? Oftentimes you’ve worked long and hard to land that huge rapid growth opportunity, and the adrenaline rush is intoxicating. Why, then, would I rain on your parade?

Here are two of the main problems that can come with rapid growth:

1.    You’ve had a huge increase in demand for your products or services, so you need to spend money to fulfill that demand. Meanwhile, you haven’t received enough cash for past services to pay for all this increase in people, infrastructure, etc. You borrow what you can, but ultimately you just plain run out of cash. You can’t pay your bills before you can collect the new revenue. so you go bankrupt.

2.    Let’s say you haven’t run out of cash yet, but you’ve scaled up quickly to fulfill the new demand. Your current infrastructure of people and processes is overwhelmed. Your current team members begin to get tired, burn out, and make mistakes due to fatigue. The new team members you’ve hired haven’t had time to get properly trained, and nobody is really competent on the new software system you had to buy. You’re not able to fulfill your commitments to your clients; not only the new ones, but also your legacy clients. Your clients start to say to their friends, “You know, the Acme company used to be great to do business with, but lately their quality and service have been substandard.” You’ve now ruined your brand in the marketplace, and it’s very difficult to recover because you’re starting from a baseline of “below average.” Nobody wants to buy from you anymore, so you go bankrupt.

All said and done, it’s about leveraging the risk/reward equation for your business. You’ll need to decide whether the amount of risk you take will be worth the potential reward.

The lesson here is to be realistic in your forecasting as you evaluate each new growth opportunity. Sure, sometimes you can swing for the fence and it pays off, but most times a base hit or a double better achieves your long-term success.

Don’t be a stranger. (770) 993-1129. tdockery@TheResolveFirm.com