- It's a common view among all small business owners and entrepreneurs that growth is good, and that's what we should be focusing on.
- But there is such a thing as 'bad growth', i.e. growing a business without control.
- Before you focus on gaining market share, learn how to keep in control of the output and margins of the business as it grows.
Most of us small business owners want to grow our businesses beyond where we are now. I get it, I want to grow my own business a bit further myself. After all, we are told that: Growth is good.
But besides the fact that there is such a thing as enough (more about the concept of enough in my article on the business growth myth here), there is also such a thing as bad growth.
Bad growth is growth without control
Let me explain. Many businesses, large and small think that they need to gain "market share." If you are growing your market share then you’re doing a good thing, because market share means you can control the market you are in, make more profit and keep the competition in its place. I believe that theory is largely a fallacy. I don’t think it often works in large business and it certainly doesn’t fly in small business land.
The only 2 questions that really matter when considering growth in your business are these:
- Can we keep control of the output of the businesses as we grow?
- Can we keep control of our margins as we grow
If the answer to either of those is "no" or "not really" -- you should focus your energy on getting on top of those two questions first before you focus on growing the business.
I recently worked with a client Susan, who developed a unique concept for home delivered flowers. When we started working together Susan was really worried that competitors would come along and steal her market and she wanted to implement all kinds of growth strategies straight away to keep her advantage. When we got underway, however, it became clear Susan’s business wasn’t actually making any money, worse, she was often not able to draw much of a wage from the business even though she was doing regular 80 hour weeks.
Also, I was concerned that if we were to go about growing her sales significantly things would start to implode in the delivery and production sides of the business.
I managed to curb Susan’s impatience because, as I explained: "If you are losing money now, growth is just going to mean losing more money."
So Susan and I knuckled down and started dotting the ‘I’s crossing the ‘T’s, implementing systems and procedures, reigning in costs and expenses and increase her prices. 6 months later, the business became consistently profitable. And since then Susan has started growing the business steadily and with control. A year later the business has doubled in size, her margins are steady, her staff are engaged, Susan is paying herself properly and her customers love her because her flowers are gorgeous and they’re delivered on time.
And the competitors? Some of them came, some of them went again.
You see, it’s never about the idea in business, it’s always about the implementation. You can build a great business selling milk, as long as you do it really well. Susan does it so well now that the competition is going to find it really hard to knock her off her perch. Next year she’ll duplicate the same business model in a different city and I have no doubt she’ll do just as well there, even if there are already competitors operating in those markets.
Growing a business is actually surprisingly easy in many cases. What’s not so easy is to grow with control and profitably.
If you are plumber fixing blocked drains, burst pipes and leaking water heaters in Sydney, all you have to do to grow your business significantly, is some judicious Facebook and Google advertising. Assuming you create the right kind of ads and have the right kind of budget, you’ll get lots and lots of inquiries and if you offer the right price and conditions you get lots of work.
Running Out of Cash
The problem is that unless you’ve set up your systems and procedures to cope with the management of the work and the people who do the work you’ll start to stuff up all over the place, you’ll end up with lots of unhappy clients and the margins you make on the jobs will not cover your costs. Before you know it you’ll go broke, or run out of cash or both.
Focus on the numbers and on the systems first -- there is no other way
Great businesses and money-making machines as Ray Krock, founder of McDonald's, called them, are built on predictability and repeatability.
Do what you do well, and consistently make sure you make enough money on each and every job or project you do to cover your expenses and leave money left over. Ensure you get paid on time so you have cash in the bank. Then, when you have all of that working well and you feel you have your finger on the pulse of the key aspects of your business every day -- then and only then you can focus on growth. It’s the only reliable and sustainable way to build a FUN and PROFITABLE business.
I promise you.
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