Business Basics: Too hot to handle?

March 19, 2018 -  By

Phil HarwoodA growing business produces many benefits, if it’s managed properly. Growth often results in new positions, opportunities for advancement, a more stable management team, better technology utilization and more.

We can all agree that growth is generally a good thing. But how much growth is too much? What are the dangers of growing too quickly? What do we need to be on the lookout for as we grow? How will we know if our growth is too hot to handle? After all, what’s the point of growing if it leads to failure?

We’ve all seen companies in our markets come out of nowhere, grow quickly and then disappear just as fast as they appeared. They couldn’t overcome the challenges of growth.

The challenges of growth

The first challenge is being able to find qualified people. The labor shortage presents an even more difficult challenge. Growing companies need crew members, crew leaders, frontline managers, office staff, account managers, sales professionals and eventually top-level executives. Companies using a subcontracting model need additional qualified subs and increased capability to manage more subs.

My previous company was adding more than $1 million in revenue a year during a labor shortage situation similar to today’s. We invested in a bilingual human resources professional, year-round recruiting and myriad employee satisfaction and retention programs. Overcoming the people challenge requires significant investment and full dedication from everyone in the company.

Speaking of investments, the next challenge of growth is cash. Fast-growing companies burn through cash due to the many demands of growth. In order to serve new properties, we need more people, which means spending money on recruiting, onboarding, uniforms, training and more. We also need to add vehicles, expand parking areas, add facilities and so on. Then we need more equipment, tools and supplies. The list keeps growing.

My previous company had one administrative person working almost full time on purchasing, and we had a high-level CFO monitoring our cash flow daily. We also had excellent banking relationships and business partners to obtain working capital whenever needed.

A third challenge to growth is the stress it places on the factory. Your company is the factory. It uses labor, equipment, technical skill and systems to produce your product. As the factory heats up by speeding up the assembly line or adding more shifts, you place more stress on these systems. If the systems are not sufficient, they will fail. Most smaller companies have few systems in place, and growth creates problems because the systems can’t support the stress.

The good news is that if systems are in place to support growth, growth makes life easier, not harder, because the company’s burdens are spread out over more people. In the best-run companies, there is almost a sense of it being too easy—that there is no burden at all. Contrast this reality with that of an owner-operator of a small company, working six days a week from the crack of dawn into the evening, rarely taking a day off and being frustrated by it all.

So how much growth is too much? It depends. As a rule, up to 10 percent revenue growth per year is considered to be the growth resulting from just doing a good job day in and day out. This is organic growth from referrals and increased wallet share with existing customers. For a large company, 10 percent feels pretty hot because adding 10 percent to a big number makes it even bigger.

At the other end of the spectrum, 10 percent growth for a small company is nothing. Smaller companies can easily sustain a 50-100 percent growth rate—or more—for several years if they’re prepared for the challenges. A solid rolling budget and strategic plan are key for these companies. Companies growing more than 100 percent a year have compressed planning windows. They almost need a new strategic plan every quarter. It’s doable but not without excellent management and probably some outside support.

For a midsized company, 10-20 percent is the range I see most often for steady, stable growth without getting too hot. Ten percent growth feels pretty comfortable, whereas 20 percent feels a little hot. Many times, midsized companies shoot for 20 percent growth but are happy with 15 percent or even 10 percent at the end of the day.

Photo: ©istock.com/Madmaxer

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About the Author:

Harwood is a Managing Partner with GrowTheBench and Pro-Motion Consulting. Reach him at Phil@GrowTheBench.com. He is a Landscape Industry Certified Manager, NALP Trailblazer, NALP Consultant, and Certified Snow Professional. Harwood holds a BA in Marketing and Executive MBA with Honors from Michigan State University.

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