In the worst recession since the Great Depression, nobody seems to be worried about the issues that arise from too much business growth. However, after every recession, a sudden growth spurt does occur, and it’s how your business reacts and responds to this growth spurt that will dictate your company’s success for years to come.
In fact, most of the businesses that suffered the most over this most recent recession were simply too big and cumbersome from the previous growth spurt that they simply stopped doing the right things. While it may seem far away, the economy will rebound and your business must do the right things before that growth spurt occurs. So, what are some of the impacts of too much business growth?
1. Sudden Business Growth Can Lead to Diminished Returns
Now some of you may be wondering how having too much business can have an adverse affect on your gross profit margins. Well, imagine a situation where your business faced so many orders, and so much increased demand, that your company suddenly had to pay your employees more overtime. Will this impact your gross profit margins? Of course it will. What if during this growth spurt, at the height of your increased demand, your business simply becomes accustomed to the overtime and rationalizes it as simply a part of rapid growth. Will this eventually become a problem? It most certainly will.
The most recent recession caused a number of problems for companies that simply had too much overhead. Sure, a sudden decrease in demand didn’t help either, and when the general consumer stops buying, everybody suffers. However, North America has gradually been losing millions of manufacturing jobs to overseas manufacturers for years, and while some of this is due to a lower labor cost overseas, a large portion of it also had to do with us not being anywhere near as efficient as we should have been. The problem with rapid business growth is that companies often over-commit themselves, and never adjust to the increased demand by increasing their production throughput or capacity. They simply become ambivalent to the overtime.
Part of increasing efficiency comes from adopting lean manufacturing principles. The video above shows how to set up lean work cells in manufacturing, while also determining the productivity rate and amalgamating the volumes emerging from individual cells on the shop floor. To learn more please go to: Manufacturing Work Cell Optimization: Design, Layout and Analysis
2. Sudden Business Growth Leads to Employee Turnover
Nobody could ever blame a company for wanting to take advantage of increased demand for its products. After all, many companies are simply waiting for the current economy to rebound and take off. However, when growth is so fast, and requires so much effort as to leave a workforce exhausted and defeated, it’s not unexpected that some employees will decide to leave. This happens often because the employees simply feel used and abused, rather than needed and appreciated. It’s all about perception, but perception is truly 100% reality.
When a company suddenly experiences a growth in demand, it must be seen as a good time for both the business, and the employees. Therefore, it must be reinforced that this is a good time, and that every employee is valued and appreciated for their efforts. After all, they just want to make sure they have as much opportunity for personal development as the business has for growth.
3. Sudden Business Growth Leads to Product & Service Issues
What is the outcome of having too much demand? Is it possible for all that demand, overtime, tightened schedules and pushed up delivery dates to actually come back to haunt the business? Well, the answer is yes. This is especially true if the company that is experiencing this sudden growth has not properly addressed their internal operations, systems and software to compensate for the increased demand. The result is everyone pushing the envelope, cutting corners, and sacrificing product and service quality in the name of getting product out the door.
Now, I’ve seen the effects of this at a number of customers of mine. I’ve been with many small businesses who had antiquated and outdated internal procedures and processes that became a disaster once demand increased. They simply weren’t able to handle the increased volume of work. They didn’t have the proper MRP (materials resource planning) ERP (enterprise resource planning) or CRM (customer resource management) software to handle the sudden growth in business.
In fact, a number of these companies managed their operations with simplistic word documents or excel sheets, that were never live and never updated. I’ve been in companies whose internal departments all ran on different systems, excel sheets, different procedures and processes, and whose ability to meet the requirements of their customers was simply impossible from the get-go.
One tool that can help your company maintain focus is to perform a value-chain analysis. The above video explains the process in detail and is taken from the post: Your Value Chain Defines Your Value Assertion: B2B Marketing Essentials
If your operations is not set up to handle the increased demand, your product and service will suffer. It’s just that simple. Remember, once this recession is over, every business will welcome the increased demand with open arms. Most will learn to deal with the business growth and welcome it. They’ll learn to adjust, and improve their operations.
Unfortunately, a number of companies won’t be able to adjust, and will suffer as a result. Just be sure to be ready when this economy turns around, because it will. Every economic recession is followed by a period of growth and it's ultimately those companies who are prepared for that growth, that end up grabbing market share.
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