Twelve steps to success.

  • 2001-12-13
  • Paul E. Adams
Step 8: Avoiding expansion

"To grow faster than one is able to manage is flirting with disaster."

Ann Wang, Wang Laboratories.

"There is nothing more difficult to plan, more doubtful of success, nor more dangerous to manage than unwarranted expansion." - Machiavelli.

Watch out for the temptation to own the biggest business on the block. As we live in a society where bigness is viewed as a symbol of success, be careful not to confuse success with how fast you can expand your business.

Seasoned entrepreneurs well know that over expansion is a leading cause of business failure.

Even the famous medieval author Machiavelli, a favorite of many a contemporary executive, in "The Prince" warns us against seeking rapid or widespread change. His warnings are timeless.

If you hunger to quickly outdo your competition I suggest you watch out. A business is not a sporting event. Do not be fooled by the expression "The race is to the swift." Instead, remember the fable of the tortoise and the hare. It is not enough to start the race - you must finish it.

Of course, you need to grow your business, but establishing growth as your major goal can lead to bankruptcy. Bankruptcy court records tell many a tale of rapidly expanding companies. All to often, talk and plans of expansion are the scene seeds of destruction. Dreams of bigness can easily repress caution.

Before you attempt to peer over the horizon to see your worldwide empire look at your inner-motives. Is there a relationship between "bigness" and your emotional needs? What are you attempting to prove with your new business? If you are truly honest with yourself, you may not like the answers.

If you insist on pushing for every possible sales dollar, the increase in your sales volume may be a misleading measure of growth. What caused it? Did it increase from market conditions, expensive promotions, reduced prices, or very loose terms of sale? What will it do to your profits?

Many an ill-fated racked up dramatic increases in sales but the losses expanded as well. And you know what happened. Growth without profit can only lead to cash shortages and piles of unpaid bills. Not a pleasant situation.

If you have been fortunate to find a certain market niche that propels your business ahead with a healthy and steady growth - hooray! However, if you are forcing it by giving away your profits take stock of your strategy because in the long run it won't work.

You need a plan that will allow you to side-step potential traps that can bring your new business to a tragic end. But you also need a strategy for success. Not just a business plan, but a set of guidelines similar to a set of principles that will help keep you on your path to success.

Focus on slow and steady growth - grow your business don't explode it. Concentrate on earning a profit, building your assets, controlling your debt and managing your cash flow.

Let your success grow you. It can be difficult to judge the right amount of growth you will need to insure your long-term success. If you try to grow to fast, it can lead to insolvency. If you repress growth, you are missing opportunities. Here are a few hints to help you set the right pace:

1. How fast is your industry growing? Are you keeping up with it?

2. Be cautious of your short-term liabilities outpacing your short-term assets.

3. Increases in your expenses should lag behind any growth in sales.

4. Be cautious of mortgaging your future. Your survival during the first three years means you must be as financially flexible as possible.

5. Don't always view retrenchment as failure - it may mean survival.

6. Be comfortable with your rate of growth. Your business is not a sports event.

As tempting as it may be, you will be wise to avoid the trap of rushing to be the biggest kid on the block - be a turtle for a bit!