Business owners don’t start companies with the hope of just getting by. Rather, entrepreneurs pour their time and resources into their business because they’re passionate about what they’re doing, and they want to realise a greater vision. That means not just establishing their business, but growing, innovating, and taking a leading position in their industry. Doing so successfully, however, is tricky, and requires a lot of preparation.
In order to grow sustainably, businesses need to carefully evaluate and manage their growth potential. Trying to launch into a growth phase when your business isn’t ready is dangerous, and can ultimately weaken the business, or even drive it into bankruptcy. Healthy expansion needs to be supported with excellent planning, solid financing, and strong human capital.
1. A growth plan with measurable goals
Many inexperienced entrepreneurs attempt to grow their businesses early on with no particular goal in mind beyond increasing revenue and becoming larger. Not only is that approach haphazard in a logistical sense, it also doesn’t supply any goals to reach for, or any real way to measure success, which can easily translate to large sunk investments with little to show for them.
A good growth plan focuses on bringing the innovative, disruptive, or otherwise competitive solutions that your business offers to a broader market. It considers which potential target markets to sell to, and determines in what way and to what size a business is attempting to grow at a given time. This gives business owners more control over exactly how the business will attempt to grow, heading off many of the potential issues that can turn a growth phase into a collapse.
2. A healthy business credit profile
Most businesses will wait several years after initially launching before they attempt to significantly scale up. While there are a number of reasons for this, not the least of which is getting sufficiently established to grow in the first place, the primary barrier is financing. It takes years to develop the strong business credit profile that businesses need to access the loans required to fund their growth efforts.
For small businesses, this can be a serious issue. Many inexperienced entrepreneurs use personal loans to launch their business, which doesn’t do anything to develop the business’ credit profile, and makes them personally liable for the loan. This can be easier early on in a business’ life, but can lead to trouble. While business credit profiles take other issues like supplier relationships into account, a slim credit record can keep a business from accessing the financing it needs when it’s time to grow.
3. Access to flexible financing
Once a business has launched into a growth phase, it’s often left vulnerable to cash flow interruptions. Existing funds and additional financing is usually consumed by growth-related costs, and additional cash flow issues can quickly leave a business overextended. Drawing funds away from growth efforts can stall progress, and ultimately destabilise the entire operation. To manage, businesses need fast access to short term funding.
Alternative finance tools like invoice financing and supply chain finance are ideal for this purpose. Invoice financing allows businesses to give themselves an advance on outstanding payments, while supply chain finance makes it possible to defer outgoing payments without interrupting a business’ operations. Used separately or in conjunction they temporarily free up funds that make it possible to smooth over these smaller issues.
4. The right team for the job
Growth requires good planning and solid funding, but those aren’t enough on their own. Ultimately, businesses are made up of the people who make them run, and growing businesses rely heavily on their existing talent to make their expansion efforts a success. Growing means hiring new employees, expanding the roles of existing employees, and often relying on them to train new talent and keep operations running while you focus on successfully growing your business. This can be difficult to manage, even for good employees.
To be successful, businesses need to take the time to build a strong company culture and develop a team that works well together. This gives new team members an existing system and culture to integrate into, and provides them with the guidance they need to become productive as quickly as possible without compromising the existing culture and effectiveness of the team.
Taking these steps allows business owners to avoid many of the pitfalls that are associated with unguided growth. Furthermore, it gives entrepreneurs more security and more options. Strong teams backed by solid and flexible financing can effectively innovate and adapt to changing situations. This makes them better able to compete in changing industries, and more importantly, gives businesses more potential to become the disruptive business causing those industry changes.