It may seem like a ‘Champaign problem’, but too quick growth is not always the best formula for startups. In fact, growing pains associated with gaining customers far faster than planned can be a dangerous situation for firms, putting the entire future success of the firm on the line.
Challenges associated with rapid growth
Cash flow problems
The most immediate problems associated with too quick growth can be dealing with the cash flow difficulties – that is, having the money on hand to make payments for your inputs in advance of receiving money from your customers.
The impact of cash flow problems really depends on the difference in time between making payments for your inputs (including the cost of material and any labor) and you receiving payment from customers. Depending on your setting, you may be lucky to receive payment in advance – often sidestepping cash-flow difficulties. However often times you will need to acquire resources before the sale, and especially with B2B sales, have to wait potentially several months before receiving your payment.
When there is a big lag between your outgoings and receiving payment from your customers, quick growth can put a strain on cash flow. Suddenly you are expected to make payments on your inputs to make the products, despite not getting the money from your customers for these goods for several months. Depending on your cash reserves (or ability to gain capital from creditors), this may put you in a difficult situation in paying for the inputs to fulfill your orders.
Insufficient staff and other resources
A connected issue associated with lack of resources is that you end up providing sub-par service to customers, which damages your long-term reputation. Delays in delivery, reductions in quality, or difficulty getting product support are all potential issues that can arise when demand suddenly increases and you lack the ability to fulfill the regular service.
Not living up to customer expectations
A difficulty that companies can have when demand suddenly increases is a lack of internal resources to meet the additional demand. Training staff, getting new machinery, and working through new routines to allow you to produce additional products can be a difficult process – doing it at speed to meet a sudden demand spike can be an even harder task.
Inorganic company growth is growth through acquisitions or mergers with other firms. Rather than growing internally by gradually building internal resources and the customer base (organic growth), the company seeks to grow through acquiring another firm.
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