Dangers of premature scaling 

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Dangers of premature scaling 

By Anthony Lam, Entrepreneurs’ Organization in Australia Melbourne Board member and Accelerator Chair

As a business founder, growth is almost always the goal. Growing, evolving and ensuring the success and longevity of the business. However, with rapid growth comes rapid change.

Without an adequate plan and funds in place, scaling too quickly can see your systems and processes fall apart. There are many things to consider – how will the growth affect your brand, how will it affect the culture, what do you need to change, and how do you make sure everything continues running smoothly?

At Entrepreneurs’ Organization, with hundreds of founders across Australia, we’ve seen many examples of the successes and pitfalls of rapid growth. 

Here are some of the biggest lessons we’ve learnt:

Cash Flow

Cash flow is the lifeblood of a business. It’s essential to how long you can keep a company running and the difference between profit and loss, growth and stagnation, success and failure. As a business grows, it can become tougher to keep track of the books. Some of the main reasons scaling can result in cash flow issues are – invoices not being paid on time, a surplus of stock or poor management, which can result from hiring too quickly. Do you have cash reserves, or can you access a loan if and when it’s needed? Sit down with your accountant and keep an eye on your profit and loss statements. 

Don’t hire too quickly 

When you’re scaling quickly, it can be tempting to hire people as soon as sales are coming through or even, in some cases, beforehand. 

Hiring too quickly can be an issue for cash flow, but also hiring the wrong people for the job. It’s important to remember that hiring more people doesn’t always mean you’re making progress faster or reaching success faster. Hire when you really need someone on board and know exactly what they’ll contribute to your team’s goals and overall success. These should be clearly defined roles to meet a need that is lacking, and speed of growth shouldn’t result in sacrificing proper training and processes. Hire people who fit your culture and vision for where your company is headed. 

Stay focused on your values – are you still aligned?

It’s important to remember that your values drive you to do the work you do. If you lose sight of them, it can be difficult for you and your team to stay motivated and work towards the right goals. Wanting everything done quickly and perfectly can cause us to lose sight of our purpose or why we started doing what we were doing in the first place. If you’re no longer feeling energised by the business, it might be time to reassess. 

Are you getting distracted by bigger ideas 

When you’re growing your startup, it can be tempting to get distracted by bigger ideas. What if we were to expand into a new market? Many businesses fail because they get distracted by bigger ideas than what their customers actually want. This isn’t to say don’t innovate, but don’t lose focus on your core products or services that led to growth in the first place. 

Are you receiving more customer complaints?

If you’re finding that your customer service team is getting slammed with complaints, it could be a sign that your systems and processes aren’t keeping up with the growth and demand. Take stock of your processes and where things are falling down. Are new products not meeting customer expectations? Are there issues with delivery systems that could be swapped? The cost of losing potential repeat customers can be huge, and the fallout from bad reviews is significant. Keep your customers happy before finding new ones. 

Stop, breathe & ask yourself a few simple questions:

  1. Are your team leading the change, or are they burning out?
  2. Are your team members on board with the rate of change?
  3. Are they able to adapt to the change?
  4. Can your team communicate the change effectively, both within and outside of the organisation?
  5. Was your business operating optimally before you began to scale, or are you scaling your problems with your business?

As you scale, you are likely to encounter some hiccups. Where Entrepreneurs’ Organization in Australia excels is in providing peer-to-peer support and experience sharing, so you can be supported through change. Rather than ‘advice-giving, EO’s philosophy of experience sharing means you can listen to the challenges other business owners have faced and what went right or wrong, then assess for yourself what to take from it. Rather than hearing ‘don’t hire too fast,’ the business network offers a forum with a small group of other business owners turning over $1mill USD+ to share what hiring too quickly or slowly looked like for them. Having others to share your entrepreneurial journey with, talk through challenges with, and keep actively learning with can be the difference between a flourishing or shrinking venture. 

Remember, cash flow and how well you’re meeting the needs of your customers should be top priorities as your business changes and grows. 

To find out more about entrepreneurs and business owners in your local community, visit https://www.eoaustralia.org/ 

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