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Managing Growth
This fact file reviews the process of running a small business with particular reference to the management of growth.
1. Introduction
Businesses like products, pass through stages of growth themselves. Some entrepreneurs plan to grow their businesses indefinitely. Others find they prefer to limit growth in order to maintain control and involvement in the day to day processes of running the business. Most business planning concepts already accommodate the concept of growth, but in some cases rapid growth can heighten all the usual problems of running a business. It is useful to review the principles of small business management with particular reference to growth issues.
2. The Business Growth Life Cycle
The business growth life cycle may be divided into four distinct stages.
(i) Birth - Seeking out finance for start-up costs, building a customer base, steeling into premises, hiring staff and developing goodwill.
(ii) Trial - The main objective is survival. Problems at this stage are obtaining a market niche, staff development, product refinement, establishing internal systems and determining staff roles and lines of control. The business gradually becomes more stable as it moves to stage three, or the growth stage.
(iii) Growth - The customer base, internal systems, staff and company resources expand while the businessís products become more refined and diversified.
(iv) Stage four is typified by continuing growth or survival, or decline depending on the company's success. The business is continually changing as it moved through the four stages of growth. Small businesses are more likely to grow and succeed if there is a positive commitment to growth.
3. The Challenges of Growth
Many businesses are destroyed by overtrading. The problems is all the more acute because it does not appear at first to be a problem. For example, a small business is launched and discovers there is an enormous demand for its products. The rewards seem to be massive. They want to benefit quickly before others enter the market and drive prices down. A backlog of orders builds up. The business borrows heavily and starts developing production capacity. Difficulties with new staff, and unforeseen technical problems disrupt production. Customers are disappointed. Products do not work properly and have to be repaired. Costs go up, customer interest declines, eventually the receivers are called in.
This may be an extreme case, but the story is all too common. Typically all management problems are heightened and individuals find themselves under great pressure. Growth can take many different forms. Issues typically include one or more of the following:
(i) Hiring and managing new employees.
(ii) Diversification of available products.
(iii) Relocating to a larger site.
(iv) Importing and/or exporting
(v) Taking on new partners.
(vi) Increasing production capacity in order to meet demand.
(vii) Acquisitions
(viii) Increased turnover and profitability.
(ix) Expanding customer base.
For some businesses the question is not about whether or not to grow, bur rather how quickly or to what size. The key to successful growth is careful forecasting and planning. Forecasts are the best estimate, the best guess of future performance.
4. Strategic Planning
Too many small businesses do not bother to undertake serious and effective business planning. A stable operation can often get away with this, but in conditions of growth the lack of a systematic planning process can be disastrous. Good business planning leads to growth and increased profitability in terms of boom, and ensures survival in the lean years.
Ideally a plan for growth should maintain a balance between investment and costs on the one hand and cash and profit generation on the other. There is a need for planning in all areas of your business. The development of sales must be matched with the development of working capacity to match increased production commitments. Planning needs to take place in the short term as well as the long term as circumstances can vary from day to day. The planning process should involve everyone and should also extend to the approach which individuals take to their time management. The everyday discipline of foreseeing changing circumstances and deciding how to deal with them is fundamental.
There is no single planning approach which can be universally applied to small firms. A strategic plan includes goals for marketing, finance, staff development etc. and proposes the time schedule for each objective. The objectives should be clear and specific. A strategic plan may also include the relevant subjects for your business such as quality, diversification, acquisitions, market share improvement, sales growth, etc.
5. Developing the Team
Entrepreneurs have to delegate tasks and relinquish control of parts of their businessís operations if they wish to create the capacity for growth. Success depends on the efforts of other people not just the entrepreneurís own motivation and standards of work. The entrepreneurís role changes into that of a coordinator. Success depends on the entrepreneurís ability to delegate, recruit the right people and get the best out of them. If you are committed to growth you must take active steps to learn how to manage teams and get the best out of individuals. If you feel this is not your forte, you could introduce a partner with these skills.
Involving others rids the entrepreneur of many of the mundane tasks of business development but there is inevitably a loss of direct involvement in day to day functions. This can cause the individual to reconsider the goals for their company. The increased difficulties of personnel management and motivating a workforce, coupled with a loss in job satisfaction can lead the entrepreneur to restrict growth and maintain a company size which is manageable and from which a compromise in the rewards of financial income and job satisfaction is obtained.
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