One of the most exciting times for small business owners is when they see their sales grow; even more exciting when those sales grow quickly. Sales are often used as a measure of business success. In reality, all business owners should use profit as a key measure of the business’ success because sales growth can require a high price.
Rapid sales growth can be achieved either organically (that is, through activities internal to the business) or inorganically (that is, through activities external to the business). Organic growth typically occurs through the launch of new products or services; by expanding the geographic market; and by starting up a new business – although growth in this case can start slow and then speed up. Inorganic growth typically occurs through mergers or acquisitions.
While inorganic growth is often very fast growth – if you buy a company that’s bigger than you, you’ve more than doubled your size – it is often expensive growth in terms of money, time and resources. Buying growth by buying a company means that you will often purchase the bad along with the good. For example, the bad can be the total cost of the acquisition; purchasing old equipment and/or inventory along with new; acquiring unhappy or high priced labor; a bad reputation; and more. The good can be acquiring the sales book, which is the company’s list of customers; additional services; a larger territory; more staff, taking out a competitor; and more.
The additional considerations for buying or not to buying growth should be how challenging is it to merge the two companies and the two cultures; what synergies can be gained – if any; if the acquisition results in an over-staffing who will be laid off, how will the lay-offs be decided, who will do the lay-offs, what will be the outcome and the environment after lay-offs. Do you have enough in-house human resources support for this type of growth? If not, can you outsource to a competent individual or firm?
The difference between acquiring a company and merging with another company is usually related to either a win-lose proposition (one company is the winner, the other the loser) or a win-win proposition (both companies are motivated to merge successfully for a number of business reasons). Mergers can consume a different resource focus: ensuring that both companies, their staff, their customers and all stakeholders feel that the end result was a win-win.
In either of these inorganic growth strategies, create a checklist approach to ensure that you carefully review all the pros and the cons and weigh the rationale carefully before you move forward on the merger or acquisition path.
Organic growth is typically a slower and more manageable type of growth. However, if your business is growing through a period of fast growth, you need to manage that growth before it overtakes you.
7 Tips for Managing your Growth:
- have a comprehensive human resources plan to handle fast growth and peaks and valleys in business activity;
- have job descriptions and a structure for your company;
- have developed standard operating procedures for your business;
- have a strong customer service program – so that customers are not negatively impacted by your fast growth;
- have a strong quality and continuous improvement program;
- ensure that you have the operating structure (whether that means increased inventories, longer hours of work – moving from a one shift operation to a two shift operation; adding more productive equipment); and
- have the cash flow to sustain growth (you will need to pay for more supplies and materials, for labor, for transportation, etc.) – unplanned and/or fast growth can have a big, negative impact on liquidity.
Whether you grow organically or inorganically, you need to plan for sustainable growth. Your plan needs to include how you will manage fast growth.