I see many businesses make similar mistakes when they are going through a growth phase. Where decisions made based on the expectation of achieving a certain outcome, can potentially have long lasting consequences when things don’t pan out as expected; or alternatively they exceed expectations which can then leave their management systems struggling to keep pace.
If you have successfully tendered for a large contract and now you need to gear up in terms of resources and supplies to meet the upturn in product or service output; here are some key points to consider:
If you plan to use existing staff levels, but increase their overtime or number of shifts to meet the increased hours required – did your tender cover the additional labour costs? Overtime rates are usually at time and a half, and if labour is a significant proportion of your product or service’s final cost, then this oversight could very quickly erode profit. How will you ensure that your staff remain fresh and committed to quality if they are continually doing long shifts – how sustainable is this strategy longer term?
If you need to buy in larger than usual stocks of supplies – and if you pay for these using a finance facility – have you factored the interest and higher than usual repayments into your costings? This could have a significant impact on your cashflow, especially if the production period co-incides with significant tax payment dates. Also bear in mind that you will need to purchase supplies well in advance of final invoice date to the client – and then allow for 30 (or more) days before receiving payment – that could mean you are carrying the costs of increased supplies and inventory for 90+ days. Ensure your profit margin allows for this, and that your cashflow forecasts can sustain this increased pressure.
If you plan on hiring more staff to cover increased labour requirements, have you taken into account who will be required to train them and bring them up to speed? These activities can take your more experienced staff away from their usual duties, so your overall productivity may decrease before it increases. Another factor to consider is quality during this period. Gearing up for more throughput, may come at the cost of maintaining acceptable quality. Poor quality product or service delivery can result in re-work, increased costs, and/or dissatisfied clients - which puts significant stress on staff who are already under pressure to increase output.
Have you considered what you want the business to look like in three to five years’ time?
Will it double in size? And does that mean twice as much turnover, or twice as much profit, or both?
What might this mean for your management structure, internal policies and procedures?
Do you have the right team members in the right places to ensure manageable and sustainable growth?
What role do you see yourself doing? You may have been satisfactorily skilled to manage a small business, but do you really have the skills required to lead it through a significant period of growth and upgrade all the management and operational structures and systems required to not only keep pace with the growth, but to future-proof the business as well? Maybe you need to bring in a skilled General Manager and step back into another role more suited to your skills and experience – but still maintaining a role in the governance and leadership of the business. Maybe you need to consider bringing on an experienced advisor or mentor to assist your transition through this time.
Has your business reached the size you need to consider a more formal governance structure? This could mean appointing Board members or recruiting independent Board members or creating a less formal Advisory Team instead.
Another way to grow, is to purchase another company which holds a place in the value chain that you lack, or want to move into. Eliminating the competition through acquisition or merger is an age-old method of growth – but beware that you might also be buying redundant systems, plant or disenchanted staff – many mergers or acquisitions have failed due to the clash of staff cultures and/or each owner’s expectation of their ongoing role in the business; so ensure you complete your due diligence thoroughly.
Beware of trying to become all-things to all-people. If your core expertise is in the production of exceptional product, or the delivery of an exceptional service – then this may not translate into being an exceptional distributor or marketer as well. Ensure you recognise your limits of expertise and partner where appropriate, so that your collective strengths far outweigh any individual weaknesses.
If you want some help to talk through your growth strategy, then give me a call!