Disadvantages of Business Expansion: The Economic Growth on Business

Step 8: Avoid the Perils of Expansion

“There is nothing more difficult to plan, more doubtful of success, nor more dangerous to manage than unwarranted expansion.” Machiavelli

Watch out for the temptation to own the biggest business on the block. As we live in a society where bigness is viewed as a symbol of success, be careful that you do not confuse success with how fast you can expand your business. Seasoned entrepreneurs well know that overexpansion is a leading cause of business failure.

Even Machiavelli, the famous medieval author of “The Prince,” (a widely read favorite of contemporary executives) warned against seeking rapid or widespread change. His warnings are timeless. I suggest you watch out-if you hunger to quickly outdo your competition. A business is not a sporting event. Do not be fooled by the expression “The race is to the swift.” Instead, remember the fable of the tortoise and the hare. It is not enough to start the race, you must finish it.

Of course, you need to grow your business, but establishing growth as your major goal can lead to bankruptcy. Bankruptcy court records tell many a tale of rapidly expanding companies. All too often, when talk and plans of expansion begin to dominate the scene; seeds of destruction develop. Dreams of bigness can easily repress caution.

Before you attempt to peer over the horizon to see your worldwide empire, look at your inner-motives. Is there a relationship of “bigness” to your emotional needs? What are you attempting to prove with your new business? If you are truly honest with yourself, you may not like the answers.

If you insist on pushing for every possible sales dollar, the increase in your sales volume may be a misleading measure of growth. What caused it? Did it increase from market conditions, expensive promotions, reduced prices, or very loose terms of sale? What will it do to your profits? Many an ill-fated dot.com racked up dramatic increases in sales but the losses expanded as well. And you know what happened. Growth without profit can only lead to cash shortages and piles of unpaid bills. Not a pleasant situation.

If you have been fortunate to find a certain market niche that propels your business ahead with a healthy and steady growth, hooray! However, if you are forcing it by giving away your profits, take stock in your strategy. It won’t work in the long run.

A Suggested Strategy You need to follow a plan that will allow you to sidestep the potential “traps” that can bring your new business to a tragic ending. But staying out of “traps” is not enough; you also need a strategy for success – not just a business plan, but a set of guidelines similar to a set of principles that will help keep you on your path to success.

Focus on slow and steady growth. Control your growth – grow your business, don’t explode it. Put your emphasis on earning a profit, building your assets, controlling your debt, and managing your cash flow.

Let Your Success Grow You. It can be difficult to judge the right amount of growth you will need to insure your long-term success. If you try to grow too fast, it can lead to your insolvency. If you repress growth, you are missing opportunities. Here are a few hints to help you set the right pace:

1. How fast is your industry growing? Are you keeping up with it?

2. Be cautious of your short-term liabilities outpacing your short- term assets.

3. Increases in your expenses should lag behind any growth in sales.

4. Be cautious of mortgaging your future. Your survival during the first three years means you must be as financially flexible as possible.

5. Don’t always view retrenchment as failure; it may mean survival.

6. Be comfortable with your rate of growth. Your business is not a sports event.

As tempting as it may be, you will be wise to avoid the trap of rushing to be the biggest kid on the block – be a turtle for a bit!

Next week Step 9 will focus on asking for success and following up to make sure it happens.

Article © Copyright 2001 Dr. Paul E. Adams Syndicated by Paradigm News, Inc.