How To Manage If Your Business Is Booming
Having a great business idea turn into a booming business is a dream come true for any entrepreneur. But all too often, people have stumbled in making the transition from startup to a mid-sized business. The main problem is revealed in this quote by Bill Gates: “Success is a lousy teacher. It seduces smart people into thinking they can’t lose.”
Since even the smartest people can be made overconfident by success, check out these tips on how to avoid the blunders in expanding your business:
Do not expand more than you can manage. Know the limits of your resources and capabilities. I knew of a once thriving small chain of stores that suddenly aspired to expand nationally without franchising. Unfortunately, it was too thinly capitalized and when it encountered a period of low sales, it went bankrupt quickly. Lack of capital is not the only limitation. There are many others, like inadequate management skill or lack of technology. It is the role of top management to know the limits.
Sustain the quality of your product or service. Usually one of the things that deteriorate during times of rapid expansion is quality. Set your standards and firmly adhere to it despite the turmoil. The effects of poor quality are sometimes felt only after a long time. Management may not think that it is important at first, but once the damage is done, disappointed customers are almost impossible to recover.
Prepare for competitors. Success attracts copycats and it is only a matter of time before someone wants to take a bite out of your market. You must have contingency plans on how to handle the entry of competition. Although you should try to avoid price as the main battlefront but rely more instead on giving better value, it is inevitable that there will be pricing pressures. Your company must have sufficient reserves to weather the coming competition.
Keep a tight ship. There is a strong tendency to be lax when there are so many urgent problems. You must always keep a tight ship, meaning the organization should be kept disciplined and orderly. If this aspect is overlooked, chaos will follow, as many small inefficiencies will add up to a huge amount. Unfortunately, the ill effects are not immediately apparent and by the time management comes around to tackling the problem, it may be too late.
Think twice before taking on large debt. While borrowing may be needed if your company is to grow fast, this is something that needs a lot of careful thought. Consider the sustainability of your growth and your ability to pay in a crisis before taking on large loans for expansion. You may think that it is now time to move to a larger place, buy more equipment, etc., but if you will have to borrow cash, think first if it is possible to delay for a while so that you can finance your growth by internally generated funds. Another option may be to outsource if it is feasible.
Watch your cash flow. In the mad rush to expand, the deadliest mistake is to forget about tracking the cash flow. It is possible for a company to be very profitable, but at the same time to lack the cash to pay current obligations. Pay particular attention to your cash position if you have large loans from financial institutions. In the case of payables from suppliers, there is more flexibility. If it is not possible to always demand for cash payments, be conservative in granting credit terms and strictly monitor your receivables. Do not neglect to factor in taxes. Even if you have not yet collected cash from your sales, you must still pay the taxes on your accounts receivables. Also, do not take too much inventory especially if your products are not easily liquidated.
Avoid promotion of unqualified personnel. While this can happen in any company, there is a stronger tendency in a fast growing company to promote or post a person to a position solely because of seniority. This is done mostly to avoid disgruntlement because there is often a strong feeling of entitlement among those who have been in the company earlier. Plan your personnel promotions beforehand to manage expectations and so that key positions are filled by those who are most suitable. You can see that there was neglect in this department when there are too many people who occupy posts for which they are woefully incapable.
Addressing the challenges of a growing business is not an easy task. This is further complicated if, so far, you have encountered nothing but success. Even the most brilliant businessperson is not immune from overconfidence, which often leads to disastrous decisions. Knowing this tendency to be blinded by success, we must take precautionary countermeasures in order to decide wisely.
*Originally published by the Manila Bulletin. D-4, Sunday, August 4, 2013. Written by Ruben Anlacan, Jr. (President, BusinessCoach, Inc.) All rights reserved. May not be reproduced or copied without express written permission of the copyright holders.