The Small Business Growth Path - Crises of Growth
By Keith Wallis

The impossibility of predicting the future especially in respectto one's own business inevitably leads to a common mistake ofrepresenting likely growth in a linear fashion, that is like a straight line continually going up.

This linear representation of prospective growth is notnecessarily a mistake, but more often an expedient representation ofsomething that is, in the final analysis, unknowable. That is, weknow we will progress from point A to point B and we do not need toworry too much in the business plan about the day to day detail ofhow we will progress on that growth path.

As the vast majority of business plans are ultimately about moneythis approach is a useful expedient, but ignores the detailedproblems that may be encountered along the way - some of whichmay be insurmountable. It is a bit like planning a long expeditionacross a plain, but ignoring the fact that half way through thejourney you will need to climb up a sheer rock face: if you know atthe start of the journey that you will face this obstacle then youmight take some climbing equipment with you; without this knowledgeyou will get stuck half way through the journey and may need to turnback.

In reality business growth paths are fraught with many difficultobstacles and this tends to make make the growth path look more likea series of steps.

A growth path of steps continuously rising is also an idealisedone, but at least shows steps which will coincide with somethingknown as a Crisis of Growth.

A Crisis of Growth is a step change in the business operation.This is likely to be a significant step up in both sales andoperations. In other words everything is changing at once so that itfeels like, and indeed is, a crisis.

To understand this, imagine you are a one person company. In thiscompany you are the means of both production and sales. It isdifficult and you have to work long hours, but you only really haveto support yourself - you earn a living wage from the businessand that is all it needs to make. Then the business starts to grow,your sales process is successful and you find that you can generatemore work than you can fulfil. You may be turning work away becauseyou know you cannot do the work, or perhaps you are even taking workon, but letting people down and jeopardising your reputation.

At this point you decide to add one person to the business withthe prospect of almost doubling your capacity (they are unlikely tobe as driven as you). This decision then creates a whole new set ofproblems.

Firstly, if you employ someone who is not a family member, thechances are that you need to consider premises and move out of thatback bedroom. This will add a new set of costs to the operation ofthe business: premises, rates, power, telephone line, internetaccess. Equally (for this one person business) a large capital outlaywill be required to furnish the office with desks, cabinets andperhaps a new computer for the new employee - and this may needto be networked.

Secondly you need to ensure that the overall income that will comein will cover both wages and the increase in costs. Your sales mayhave been successful in recent times, but you may need to increasethe level yet again and this may need to be a significant increase.Not only that, but you need to have confidence that this new level ofsales will be consistent and can be maintained and built upon. Thismay mean that you will need to double your sales efforts so that youwill be spending less time on fee earning work and so in fact addingone new employee will not double your capacity at all but perhapsonly add about 50% capacity. Will adding 50% of fee earning hours tothe business cover both salaries and the additional associated costs?

Thirdly, before you get to make the capital outlay or deal withthe need to double your sales, you need to spend time and money onrecruitment. The time is probably a bigger issue than the money,because you will have to take time out of either fee earning or salesto: write an advert, review CVs or applications, make initialscreening interviews, make final interviews, write an employmentcontract, write a discipline and grievance procedure (to protectyourself more than anything), write an appointment letter, and sendoff thank you letters to unsuccessful candidates.

Fourthly, should all this work out well and make financial senseyou then have to deal with the administration of a wage and tax on amonthly basis. You may be be able to sub-contract the administrationof the wage to the accountant (another cost), but the chances are youwill also have to deal with a new cash flow issue of ensuring cash isalways available to pay your employee consistently every month at thesame time - something you have not had to deal with before inthis business.

Hopefully from this you can see that to make this bold step in thebusiness will change everything at once while at the same timeinitially reducing your capacity to earn while increasing your costs.This whole process will be enormously painful and getting it wrongmight break the business - it is undoubtedly a crisis.

Once through to the other side of the crisis and finding thingsworking then adding another employee will not be such a crisis. It isjust a case of another desk in the office, adding one more person tothe payroll and going through the recruitment process which the firstemployee can help out with by perhaps working over time and coveringthe lost time to a large extent. Adding a third employee will beeasier still.

Adding a software management and administration product into the business such asProQuin, (see http://www.proquin.co.uk) will make things easier still.

The next crisis is likely to come when the number of employeesreach a point where dedicated management is required and the businessfounder has to withdraw from day to day production / fee earningactivities. This may also coincide with a need to increase theworkforce to a point where new premises are required and perhaps anew administration system or production process required to ensureconsistent high quality from all members of the team.

Again everything will change at this point, but once it has doneso, a period of growth can be experienced which is relatively easy tomanage.

Obviously not every business is the same and the exact nature ofeach crisis will be different for each business, but the principlestands all of the way up the growth path. For example consider thetakeover/merger of two major PLCs (e.g. Lloyds Bank and TSB) and howmuch change must be required to make the two operations work togetheras one so the new organisation can be built upon and new growthadded. Mind boggling really, but again a make or break crisis.

Conclusion

Crises of growth are make or break points in the development of abusiness. The ability of the management to recognise and deal withthese crises will be a deciding factor on the ability of the businessto grow.

Many businesses seem to reach a natural ceiling beyond which theydo not seem able to grow - this is as much an issue of themanagement's inability or unwillingness to deal with the associatedcrisis that will take the business to the next level than anythingelse.

Recognising that these crises will occur periodically at theoutset will allow you to deal with not only inadequate provisionswithin the business overall, but your own limitations before the needoccurs.

For additional SmallBusiness Resources see:
SmallBusiness Control

For more about ProQuin go to:http://www.ProQuin.co.uk

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