Avoiding Biz Growth Mayhem
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And here’s your host, Matt Hardy.
Today I want to talk about growing your business.
The more conservative title is “Avoiding Biz Growth Mayhem.”
Like anyone else in business, I love seeing business growth.
It’s pretty exciting to see new sales starting to roll in as things develop.
But there can come a point in time where a company can grow too fast, resulting in catastrophic failure.
One of my favorite commercials is the Allstate Insurance Mayhem commercial called “Test Drive.”
The character “Mayhem” is played by Dean Winters from shows like “Oz” and “Battle Creek.”
I’ll put a link to it on the website.
Essentially it has a guy letting someone test drive his chopper before he buys it.
So the “Mayhem the test drive guy” winds it out, cranks the wheel and lays the bike down, completely wrecking it.
And then he takes off laughing.
Whenever I see this ad, it reminds me of how companies can grow soo fast that they get beyond a level of sustainability, and it ends up in a big messy crash.
I watched this happen in the tech boom of the late 90’s where I was involved with a business incubation company that helped other high tech start-ups get off the ground.
The years leading up to the crash were focused on growth at any cost, where high tech companies fueled by investment cash tried to buy their respective market.
It seemed nearly every day a huge merger or a buyout would hit the news.
It reached a point where companies were being bought on the quote un quote potential they had – not the sales or the market share that they currently owned.
Everybody was looking for the next acquisition or angle they could use to either bump their stock price a little higher or make their company a little more attractive as a potential acquisition.
Financials were thrown out the window as trumped up valuations, potential market share and buzz ruled the day, driving business valuation and stock prices sky high.
And then, as you know, it all came crashing down.
Without a solid financial underpinning, most companies took the form of a shooting star – lighting up the sky on a vertical growth trajectory, only to burn out and die a short while later.
The Mayhem commercial reminds me of how things can get away from you if you go beyond what you can actually handle given your current level of skill and or ability.
And outrunning your finances or trying to buy the market in an attempt to grow too quickly often results in failure.
I’ve seen a lot of different examples of this: from the high tech boom, to a guy grabbing all the work contracts for an excavation company – regardless of whether or not he’d make any money – in an effort to try and muscle out the competition.
But if the positive cash flow isn’t there or if the cost of acquiring new customers is too high, you’ll run out of the financial fuel to keep going.
It reminds me of when I took my friend’s dirt bike out for a ride years ago.
It lasted about 3 seconds.
I started it up, cracked the throttle wide open and pulled a wheelie.
And that was particularly awesome.
But when it came back down, I hit the throttle again, and the bike took off like a rocket and we ended up in the ditch on the other side of the road.
There were no injuries to myself or the bike, so it was all good.
Was it fun and impressive for the 3 seconds I was on it – before I ended up in the ditch? Sure.
But it didn’t last.
It certainly made an impression on me that things can get out of hand quick.
Which is probably why I find the Mayhem commercial so funny.
With all that in mind, here are a few things to watch out for so you can keep yourself from either going out in a short-lived blaze of glory or ending up in a ditch.
Issue #1 – Sales growth is not always the most important thing
Yes, sales growth is important, but you’ve got to keep in mind that the costs associated with your growth are not always linear.
This means that as you grow and make more sales, it may require you to take on more expenses in order to fill these sales orders and facilitate this growth.
A lot of this boils down to knowing your financials, as more sales doesn’t always equal more profit.
Another example is not knowing what it costs you to get a new customer.
If you go out there and start on an aggressive customer acquisition or growth strategy without knowing this number – how do you know if you will ever generate a positive return?
On that note, do you know what state your accounts receivable are in?
A lot of companies have gone broke just because they weren’t able to effectively collect the money that their customers owed them.
So you may be taking in a tonne of sales on the front end, but if they aren’t paying it’s going to create a major cash flow problem.
Now, I don’t recommend hiring a debt collector to keep your company liquid as you grow, but these are some things to keep in mind.
I actually heard of a guy doing this – hiring someone to collect from a customer.
Ya, he got paid – but word got out.
Naturally, people didn’t want to run the risk of having a debt collector knock on their door if they were a little late, so they ended up not doing business with him.
Soon he didn’t have to worry about collecting from customers, because he no longer had any customers.
The point is – you’ve got to keep an eye on your financials as you grow, or your company could be dying from the inside out without you even knowing it.
Issue #2 – Hiring the wrong people
If a company grows quickly, the needs of the company come pouring in fast and furious.
All of a sudden, you need to hire a lot of new people to meet these needs.
And you have a lot of pressure on you to get these hires done right away, which can result in hiring people who aren’t a good fit for the company.
In a survey, 27% of U.S. employers said that just one of bad hire could cost their company more than $50,000 once you factor in missed sales opportunities, strained client and employee relations, potential legal issues, and the money and time needed to hire and train candidates.
That’s where the mantra “fire quickly and hire slowly” comes from.
But if you’re on a stratospheric growth curve, the added pressure to fill a vacancy could end up costing you huge.
Issue #3 Chasing things that shouldn’t be your focus
When companies start to pick up momentum, it can be tempting to start to grow beyond your core competencies & strengths into new markets.
Mergers and acquisitions anyone?
Without a tight rein on the company’s direction and a near religious determination to stick to the company’s mission statement and core strengths, it’s easy to end up off course chasing new opportunities.
This is where companies often end up spreading themselves too thin and crash, as they underestimate the amount of time or money needed to chase down new opportunities until they become a sustainable and positive source of business.
The thing is – you can always go out and BUY growth.
But unless you’re trying to pump up your company and sell it off to someone else based on having high sales numbers alone – like the classic pump and dump technique used in penny stocks – if your growth isn’t done in an affordable or sustainable way, you’re going to end up running your biz into the ground.
Here’s to managed, sustainable business growth that is setup for long term success.
Want more customers, more sales, and more business? If you need to grow and develop your business, we have the answer. Visit BizDevShots.com now and click on the Biz Growth Solutions tab at the top of the page to find your solution.
I hope you got something out of this podcast.
An idea you can use.
A different thought or viewpoint.
Or maybe you found it mildly amusing.
At any rate, can you refer this podcast to one other person you think might find it entertaining or useful?
Because I want to help as many people as I can, in as short a time as possible.
Here’s something to listen to while you think about it…
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