The main aim of any business is to grow and expand, achieve success and make as much money as possible. It’s therefore easily understandable why so many new companies push on to try and grow as quickly as they can. Yet fast growth isn’t always the best route.
Research from the Universities of California, Berkley and Stanford University found that a big problem for many failed tech start-ups was premature scaling, essentially businesses growing too fast. That’s why slow growth plans and taking a stepping-stone approach can be a lot more beneficial for start-ups working in many industries.
Plan Finances Accordingly
Fast growth can result in cashflow issues, depending on the nature of your business. If you rely on clients paying monthly or even quarterly, you can end up growing quickly but not having the capital owed to effectively expand and meet the increasing demand. Alternatively, if you do receive all the funds up front, it can be easy to spend these on irrelevant areas (such as nicer office furniture) due to inexperience, rather than reinvesting in products and people.
Working with a tight budget also enables you to stick closer to your financial plan when you start to make greater profits. Slow growth whereby you set aside some of the gains made each month for the future can be a much more solid way to work financially. With greater experience of trimming costs, you should be able to maximise your profits best.
Avoid the Perils of Rapid Industry Change
Many industries are undergoing vast changes, especially with the advancement of technology. As RSM mentions, inflection points can occur and affect both businesses and sectors as a whole. For example, the internet quickly changed the retail industry in a couple of decades and it was those who reacted through stepping-stone strategies rather than quickly changing their entire business models or remaining the same that prospered.
Through slow growth, your start-up should have more time to assess what is happening in the industry should an inflection point occur. This may allow it to see what is working for competitors and what doesn’t, in reference to change. Then you can plan accordingly what adaptations you need to make to your business model to take advantage of the inflection point.
Fast growth will result in your business needing to recruit more employees. The problem can be that you may focus more on getting in new staff as soon as possible, rather than if they are the right fit to meet the business’ long-term strategy. The cost of hiring the wrong candidate can be substantial, wasting a lot of time and money without getting the desired results.
Slower growth enables your business to plan ahead, setting financial or sales targets that when they are met, new hires should be met. Closely monitoring this can help your recruitment team post job adverts and approach the right candidates in good time. And it provides more time for a thorough assessment to make sure the right people are employed.
Growing slowly and in a more measured way can be highly effective for many start-ups and avoid some of the dangers that see others fail due to rapid expansion.