Growth is a small business essential. Without it a business will stagnate, then gradually die. But uncontrolled growth can bring more problems than benefits for the organisation by placing strains on areas of the business that may not be able to tolerate the pressure. Any decision to grow the business must be made carefully, recognising that it’s going to result in changes that will add to the workload of both the people and the systems in the business. You need to be certain that the ways you choose to grow the business are within the capacity of the business itself, both in the short term and later, once the desired growth has been created.
The basic purpose of growth is to increase profits. If a business can generate $100,000 in profits in its present size, it should be able to produce greater profits after a growth in sales or after the introduction of new products. Growth is not about empire building; it’s about making more money for the business and its owners. Expand only to capitalise on opportunities that will benefit the business; expansion for its own sake has no real purpose.
Expand to create opportunities
Economies of scale are often the drivers of growth. If a business buys raw materials at a certain price it can probably negotiate a much better price if it buys twice as much. A business that buys fifteen TV spot advertisements a week will get a lower cost per appearance if it buys thirty spots per week. There is a problem of course if a business buys twice as many raw materials or twice as many advertising spots and doesn’t get an equivalent uptake in sales. There would also be a problem if the business cannot achieve economies of scale through expansion.
Expand to deliver competitive advantages
By expanding successfully and gaining economies of scale a business can become more competitive. It will be able to adjust its pricing policies to compete with established players in new market areas and to spend more on advertising and promotion against its opposition. A bigger enterprise can in theory invest more in creating and strengthening its customer relationships and in making itself attractive to prospects that presently buy elsewhere.
Expansion can put pressure on finances
Expanding a business takes money. Ideally the funds can come from those already generated by the business; usually, however, they have to be borrowed. You need to be certain that the business can afford the expansion, and that, if funds are borrowed, the business can repay the borrowings from the greater turnover it generates.
Expansion can strain customer relationships
Some customers will be concerned about your expansion. Growth can threaten their sense of security. They may prefer your business to stay just like it is and have nothing change. You need to communicate your reasons for growth to your customers and articulate the benefits it will bring to them. Lower prices, more convenience and better service should be provided through growth; you need your existing customers to be your ambassadors for growth via word-of-mouth.
Expansion will demand more from you
The bigger the business, the more management time and energy it will require. It will place more demands on you to keep in control of the enterprise; this could mean adding more management staff or delegating some of your workload to others in the business. Growth requires a sponsor – a driver to keep the process going. Inevitably this person is the owner of the enterprise, and if you don’t provide for the demands it will place on you it could create serious problems for both yourself and the organisation.