One big challenge for an entrepreneur is managing rapid growth which usually comes unanticipated and you are caught unawares. To manage growing operations you need to have open mind to implement changes in processes, policies, and employee mindset.
The growth of any business is closely tied to the application of good management skills and techniques. We need to learn all that we can about sound management principles. Anticipating the next stage of business growth and planning for it, can help to minimize the surprises your business will face. Fast growth itself can help motivate employees and help project a very positive image to customers. So we need to trumpet our successes continually to both employees and customers! When setbacks occur, we need to explain them to employees. However, we should depict them as small blips in our course to success. Everyone wants to feel like he or she is on the winning team or buying products or services from the winning team. Success does breed success. Sustaining fast growth can be tricky,though. Preserving cash, keeping people motivated, and continually finding more office space are just a few of the issues that we will encounter. The farther in advance we plan and prepare for such challenges, the more likely it is that we will be able to minimize any negative effects.
The following are a few of the growth issues that we may have to contend with.
Hiring
In dairy business there are primarily two types of hiring – one is permanent employment and the second one is contractual employment. Permanent employment is suitable for managerial people or staff personnel who would work in the administrative department or the laboratory. But for managing production operation mostly workers should be on contract to reduce financial and legal costs. In India labor laws do not encourage you to go for permanent employment. Hiring a person is much easier than firing a person from the job. You must always try to keep your salary and wage bill as low as possible.A fast-growth business means lots of hiring. And it’s very easy to underestimate the time and direct costs of hiring new people and the right people. We need to spend considerable time and effort developing job descriptions, posting help-wanted ads, sorting through resumes, conducting and arranging phone and in- person interviews, and checking references. Even if we are very busy with other issues, we can’t afford to skimp on the amount of time required to conduct a careful hiring process. If we hire someone who can’t perform the job satisfactorily,our business performance will most likely suffer. If we have to fire someone, we will engender bad morale and run some legal risks. Or we may hire someone who can adequately perform the task, but has an attitude problem. The hiree might want to be doing something else or working at another firm. This type of person will not perform to his or her full potential and may quit. Either way, we will have to go through the entire time-consuming hiring process again.
Unless our organization or company is large enough to have a human resources manager, this time will be spent by us or other managers / staff, which would be the time taken out from the management of ongoing business activities. Many small businesses underestimate the out-of-pocket costs necessary to conduct an employee search. Because responses to help-wanted advertising can be erratic,firms often find themselves advertising over an extended period of time in order to attract qualified candidates - especially for more demanding positions.It is advisable to recruit people at responsible positions through reference. The reference can be from the existing employee who enjoys your confidence or external reference from your friend circle or other reliable acquaintance.
People
While every business benefits greatly from having good people, the importance of having above-average people in a fast-growth business can’t be overemphasized.Workloads will constantly be expanding and may not be predictable. New issues and problems will constantly pop up and innovative solutions will have to be implemented quickly. You will be needing people who can think on their feet,adapt well to constant change, and put in the extra hours that will be needed to get you through the unusual pressures and surprises of managing a business in upward transition. In other words, you will need people who can get excited about being a part of your growing business.
Stagnant Employees
One of the thornier issues you are going to confront in a fast-growth business is that some people, even those who are committed to your business and work hard, won’t be able to adjust to the changes brought about by growth. For example, the person who supervised two people in the warehouse comfortably and efficiently when you first started out may not be able to manage a team of forty. As the business grows you need to make hard and objective assessments of your key managers/employees. You need to ask yourself - are they up to handling an increased or changing workload? Can a strong assistant, supplemental education, automation, or computerization bring a weaker manager up to speed?
Do you need to bring in a more senior manager to oversee that person’s work? Or do you need to make the most difficult decision of all and replace them? Even one weak employee in a key position can really drag down the performance of an entire business.
The Impact of New People
We must understand this critical aspect of a growing organization. Current employees often feel threatened by the influx of new personnel. Senior employees are likely to feel that their stature within the organization is being undermined, and less senior people may feel that they are being neglected. Before you advertise or start seeking for new positions, you should work to retain the confidence of your existing staff. You need to involve your employees in the process of structuring new positions.
If a new position will cut into the responsibilities or authority of a current employee,you need to meet with that employee privately to discuss the need for an added position and, if the employee’s performance has always been satisfactory, you need to say something positive about his performance or contributions to the company. You also need to emphasize your confidence in his or her ability to continue being a positive asset to the company.
When you are interviewing candidates for new positions, you need to ensure that position of all employees who may be threatened by the new position participate in the interviewing process. This will make them feel more confident about their position within the organization and less threatened by the new employee.
Money
Fast-growth businesses burn money! Even with good profits, there will almost certainly be times when a growing business will run tight on cash as expenditures occur before related sales are realized. The dairy business with huge procurement,logistics costs and inventory or receivables will run into this situation particularly fast. However, all fast-growth businesses are going to run into plenty of unforeseen costs. A close monitoring and astute forecasting would help you avoid tight spots it the business.
Planning
The faster a business is growing or changing, the more difficult it will be to plan future expenditures or income. But still we must plan for future. Careful planning and constant updating of plans, particularly cash flow projections, is of utmost importance in a fast-growing business. While most businesses may do a major overhaul of their projections and business plan once a year, with minor updates monthly, a fast-growth business should consider completely revamping its plans,or at least its cash flow projections, several times during the year because significant deviations from what was projected occur in ongoing sales and/or expenditures.
Because fast-growth business expenses have a tendency to skyrocket faster than sales, we need to stay on top of the changes in projected cash flows. This will enable us to make timely cuts in expenses and, if necessary, slow growth so that we don’t run out of money. We need to keep in mind which areas can easily run on less cash or maintain momentum even with less growth. Poor cash management has resulted in many a businesses go bankrupt. Hence, good cash management at the time of great growth is essential for sustainability of the business.
Profits and Margins
In a fast-growth business it is very easy to become excited about rapidly rising sales and lose track of profits. This is especially true when an organization shifts from a very small entrepreneurial organization to a professional organization with many managers. We need to be aware that during the transitional/growth phases several overhead expenses can mount rapidly. Increase in marginal cost of adding every unit of incremental revenue to the top-line must be closely monitored. A close watch over these overheads is critical for success of your business. It is highly probable that increase in marginal cost of procurement will go up more than the marginal increase in contribution per liter of milk. Now, you need to ask yourself - whether the increase in overheads (vehicle cost, repair and maintenance cost etc.) justify the additional volumes or not.
Let’s take an example to understand this better. Suppose you have started with 10,000 litre per day capacity chilling center. Your total procurement cost per liter of milk is Rs.13/- out of which other overheads are Rs.1/- per liter i.e. Rs.10,000/- per 10,000 litre of milk procurement. Since demand for your milk increased and, in turn, to meet demand you increased procurement radius and
added 2 new routes, say of 1000 liters/day. As a result overheads increase by Rs. 3000/- per day. Hence, the overheads per liter of milk would now be Rs.13,500/12,000 i.e. Rs.1.13 per litre. This is higher by 13 paisa compared to the earlier cost of Rs.1/- per liter. Assume your contribution per litre of milk is Rs.2/- . The additional milk should have generated Rs.2000/- extra contribution and total of Rs.12,000/-. But in reality your contribution has come down from Rs.1/- to 87 paisa. Hence, the amount would come down to Rs.10,400/-. So, instead of getting Rs.12,000/- as contribution you end up gaining only Rs.400/- extra for the additional 2000 litre of milk.
Good, sustainable profit margins are essential for growth. You will need fat profit margins even if you are trying to finance growth internally. A business with a 10 percent profit margin can financially sustain twice the growth rate of a similar business with only a 5 percent profit margin. You also need to remember that fat profit margins leave more room for error. With thin profit margins even a small mistake or expense underestimation can plunge your firm into an unprofitable state.
Taxes
It is easy to underestimate the impact of taxes when planning for a growing business. We should not assume that taxes increase parallel to rise in sales. As our business becomes more profitable and grows, our tax bill will likely increase at a higher rate than anticipated because either we personally, or the company (if it is incorporated), will move into a higher tax bracket. We should also remember that the size of our quarterly tax estimates will need to increase in order to cover the total yearly increase in taxes.
Facilities
A fast-growth business may need an increasing amount of space to house additional equipment and/or personnel. For example, milk inflow to your chilling center has increased from 10,000 liters to 20,000 liters per day. Then you may need to add one more compressor and a chiller with some additional pumping capacity to manage daily operations in-time.
We could anticipate growth and lease an initial space that will accommodate plenty of future growth, but this commits us to a space larger than we need now and squanders money needlessly. Or we may find a landlord willing to rent space on a short-term basis - six months to a year - so that we can upgrade square footage with some immediacy. However, moving can be disruptive to operations.
What should we do then?
Compromise! We need to try to attach an option to our lease that allows us to continue renting for renewable twelve-month periods of time after an initial two to three-year firm commitment. And simultaneously, look for a facility that has a small amount of growth space for our operations. If the overcrowding is severe, we should consider renting a separate, nearby space for one group or
department until such time as we can rent a space large enough to hold all of our staff.
Some surprises in life are great, but in business, they can mean ‘make or break’.Anticipating what lies ahead is no easy task, and the best laid plans need to be flexible to reflect what is happening in the real world. That’s why clever companies treat planning as a ‘work in progress,’ keeping them on track while freeing them up to spot opportunities or risks around the corner.
The challenge for growing companies is to keep a step ahead of changing market conditions and other important variables such as new technologies. How individual companies react to future conditions often depends on which stage in the business life cycle they are in. In today’s technology driven world business lifecycles have accelerated, but good management principles still - and always will - apply.
Any business can benefit from understanding where they are along the growth curve so they can appropriately manage where they are going to next. Avoiding unpleasant surprises is what it is all about. By understanding this, we can recognize potential problems in advance and plan for them. We need to ensure that our business is operating at its peak and predict challenges and opportunities. We also need to learn how to free up our time to concentrate on the bigger picture. In addition, we should develop a successful systems approach for our business and create a growth plan for long-term success.
The growth of any business is closely tied to the application of good management skills and techniques. We need to learn all that we can about sound management principles. Anticipating the next stage of business growth and planning for it, can help to minimize the surprises your business will face. Fast growth itself can help motivate employees and help project a very positive image to customers. So we need to trumpet our successes continually to both employees and customers! When setbacks occur, we need to explain them to employees. However, we should depict them as small blips in our course to success. Everyone wants to feel like he or she is on the winning team or buying products or services from the winning team. Success does breed success. Sustaining fast growth can be tricky,though. Preserving cash, keeping people motivated, and continually finding more office space are just a few of the issues that we will encounter. The farther in advance we plan and prepare for such challenges, the more likely it is that we will be able to minimize any negative effects.
The following are a few of the growth issues that we may have to contend with.
Hiring
In dairy business there are primarily two types of hiring – one is permanent employment and the second one is contractual employment. Permanent employment is suitable for managerial people or staff personnel who would work in the administrative department or the laboratory. But for managing production operation mostly workers should be on contract to reduce financial and legal costs. In India labor laws do not encourage you to go for permanent employment. Hiring a person is much easier than firing a person from the job. You must always try to keep your salary and wage bill as low as possible.A fast-growth business means lots of hiring. And it’s very easy to underestimate the time and direct costs of hiring new people and the right people. We need to spend considerable time and effort developing job descriptions, posting help-wanted ads, sorting through resumes, conducting and arranging phone and in- person interviews, and checking references. Even if we are very busy with other issues, we can’t afford to skimp on the amount of time required to conduct a careful hiring process. If we hire someone who can’t perform the job satisfactorily,our business performance will most likely suffer. If we have to fire someone, we will engender bad morale and run some legal risks. Or we may hire someone who can adequately perform the task, but has an attitude problem. The hiree might want to be doing something else or working at another firm. This type of person will not perform to his or her full potential and may quit. Either way, we will have to go through the entire time-consuming hiring process again.
Unless our organization or company is large enough to have a human resources manager, this time will be spent by us or other managers / staff, which would be the time taken out from the management of ongoing business activities. Many small businesses underestimate the out-of-pocket costs necessary to conduct an employee search. Because responses to help-wanted advertising can be erratic,firms often find themselves advertising over an extended period of time in order to attract qualified candidates - especially for more demanding positions.It is advisable to recruit people at responsible positions through reference. The reference can be from the existing employee who enjoys your confidence or external reference from your friend circle or other reliable acquaintance.
People
While every business benefits greatly from having good people, the importance of having above-average people in a fast-growth business can’t be overemphasized.Workloads will constantly be expanding and may not be predictable. New issues and problems will constantly pop up and innovative solutions will have to be implemented quickly. You will be needing people who can think on their feet,adapt well to constant change, and put in the extra hours that will be needed to get you through the unusual pressures and surprises of managing a business in upward transition. In other words, you will need people who can get excited about being a part of your growing business.
Stagnant Employees
One of the thornier issues you are going to confront in a fast-growth business is that some people, even those who are committed to your business and work hard, won’t be able to adjust to the changes brought about by growth. For example, the person who supervised two people in the warehouse comfortably and efficiently when you first started out may not be able to manage a team of forty. As the business grows you need to make hard and objective assessments of your key managers/employees. You need to ask yourself - are they up to handling an increased or changing workload? Can a strong assistant, supplemental education, automation, or computerization bring a weaker manager up to speed?
Do you need to bring in a more senior manager to oversee that person’s work? Or do you need to make the most difficult decision of all and replace them? Even one weak employee in a key position can really drag down the performance of an entire business.
The Impact of New People
We must understand this critical aspect of a growing organization. Current employees often feel threatened by the influx of new personnel. Senior employees are likely to feel that their stature within the organization is being undermined, and less senior people may feel that they are being neglected. Before you advertise or start seeking for new positions, you should work to retain the confidence of your existing staff. You need to involve your employees in the process of structuring new positions.
If a new position will cut into the responsibilities or authority of a current employee,you need to meet with that employee privately to discuss the need for an added position and, if the employee’s performance has always been satisfactory, you need to say something positive about his performance or contributions to the company. You also need to emphasize your confidence in his or her ability to continue being a positive asset to the company.
When you are interviewing candidates for new positions, you need to ensure that position of all employees who may be threatened by the new position participate in the interviewing process. This will make them feel more confident about their position within the organization and less threatened by the new employee.
Money
Fast-growth businesses burn money! Even with good profits, there will almost certainly be times when a growing business will run tight on cash as expenditures occur before related sales are realized. The dairy business with huge procurement,logistics costs and inventory or receivables will run into this situation particularly fast. However, all fast-growth businesses are going to run into plenty of unforeseen costs. A close monitoring and astute forecasting would help you avoid tight spots it the business.
Planning
The faster a business is growing or changing, the more difficult it will be to plan future expenditures or income. But still we must plan for future. Careful planning and constant updating of plans, particularly cash flow projections, is of utmost importance in a fast-growing business. While most businesses may do a major overhaul of their projections and business plan once a year, with minor updates monthly, a fast-growth business should consider completely revamping its plans,or at least its cash flow projections, several times during the year because significant deviations from what was projected occur in ongoing sales and/or expenditures.
Because fast-growth business expenses have a tendency to skyrocket faster than sales, we need to stay on top of the changes in projected cash flows. This will enable us to make timely cuts in expenses and, if necessary, slow growth so that we don’t run out of money. We need to keep in mind which areas can easily run on less cash or maintain momentum even with less growth. Poor cash management has resulted in many a businesses go bankrupt. Hence, good cash management at the time of great growth is essential for sustainability of the business.
Profits and Margins
In a fast-growth business it is very easy to become excited about rapidly rising sales and lose track of profits. This is especially true when an organization shifts from a very small entrepreneurial organization to a professional organization with many managers. We need to be aware that during the transitional/growth phases several overhead expenses can mount rapidly. Increase in marginal cost of adding every unit of incremental revenue to the top-line must be closely monitored. A close watch over these overheads is critical for success of your business. It is highly probable that increase in marginal cost of procurement will go up more than the marginal increase in contribution per liter of milk. Now, you need to ask yourself - whether the increase in overheads (vehicle cost, repair and maintenance cost etc.) justify the additional volumes or not.
Let’s take an example to understand this better. Suppose you have started with 10,000 litre per day capacity chilling center. Your total procurement cost per liter of milk is Rs.13/- out of which other overheads are Rs.1/- per liter i.e. Rs.10,000/- per 10,000 litre of milk procurement. Since demand for your milk increased and, in turn, to meet demand you increased procurement radius and
added 2 new routes, say of 1000 liters/day. As a result overheads increase by Rs. 3000/- per day. Hence, the overheads per liter of milk would now be Rs.13,500/12,000 i.e. Rs.1.13 per litre. This is higher by 13 paisa compared to the earlier cost of Rs.1/- per liter. Assume your contribution per litre of milk is Rs.2/- . The additional milk should have generated Rs.2000/- extra contribution and total of Rs.12,000/-. But in reality your contribution has come down from Rs.1/- to 87 paisa. Hence, the amount would come down to Rs.10,400/-. So, instead of getting Rs.12,000/- as contribution you end up gaining only Rs.400/- extra for the additional 2000 litre of milk.
Good, sustainable profit margins are essential for growth. You will need fat profit margins even if you are trying to finance growth internally. A business with a 10 percent profit margin can financially sustain twice the growth rate of a similar business with only a 5 percent profit margin. You also need to remember that fat profit margins leave more room for error. With thin profit margins even a small mistake or expense underestimation can plunge your firm into an unprofitable state.
Taxes
It is easy to underestimate the impact of taxes when planning for a growing business. We should not assume that taxes increase parallel to rise in sales. As our business becomes more profitable and grows, our tax bill will likely increase at a higher rate than anticipated because either we personally, or the company (if it is incorporated), will move into a higher tax bracket. We should also remember that the size of our quarterly tax estimates will need to increase in order to cover the total yearly increase in taxes.
Facilities
A fast-growth business may need an increasing amount of space to house additional equipment and/or personnel. For example, milk inflow to your chilling center has increased from 10,000 liters to 20,000 liters per day. Then you may need to add one more compressor and a chiller with some additional pumping capacity to manage daily operations in-time.
We could anticipate growth and lease an initial space that will accommodate plenty of future growth, but this commits us to a space larger than we need now and squanders money needlessly. Or we may find a landlord willing to rent space on a short-term basis - six months to a year - so that we can upgrade square footage with some immediacy. However, moving can be disruptive to operations.
What should we do then?
Compromise! We need to try to attach an option to our lease that allows us to continue renting for renewable twelve-month periods of time after an initial two to three-year firm commitment. And simultaneously, look for a facility that has a small amount of growth space for our operations. If the overcrowding is severe, we should consider renting a separate, nearby space for one group or
department until such time as we can rent a space large enough to hold all of our staff.
Some surprises in life are great, but in business, they can mean ‘make or break’.Anticipating what lies ahead is no easy task, and the best laid plans need to be flexible to reflect what is happening in the real world. That’s why clever companies treat planning as a ‘work in progress,’ keeping them on track while freeing them up to spot opportunities or risks around the corner.
The challenge for growing companies is to keep a step ahead of changing market conditions and other important variables such as new technologies. How individual companies react to future conditions often depends on which stage in the business life cycle they are in. In today’s technology driven world business lifecycles have accelerated, but good management principles still - and always will - apply.
Any business can benefit from understanding where they are along the growth curve so they can appropriately manage where they are going to next. Avoiding unpleasant surprises is what it is all about. By understanding this, we can recognize potential problems in advance and plan for them. We need to ensure that our business is operating at its peak and predict challenges and opportunities. We also need to learn how to free up our time to concentrate on the bigger picture. In addition, we should develop a successful systems approach for our business and create a growth plan for long-term success.
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