In Ibadan, I have seen businesses that started very well but could not leave one-year business circle; I have also seen businesses that started poorly but they are still existing and waxing strong. Sometimes, the early stage of a business could be very deceptive and make it very difficult to project the success of the chance of survival of such businesses.
Though it is the interest of all business owners to make a profit, grow and expand. But this needs to be tactically done to avoid killing the business with good intention. There are two major kinds of growths; Organic and Mechanical.
Organic Growth: This is when the growth of the business draws its strength from the business and not from any other factors outside of the business. This kind of growth is not fast; it takes a gradual process, it is not significant and sudden. It is bored out of perseverance and long-suffering of the business owner(s). The growth is a reaction to an increase in patronage it does not draw its strength from patronage, rather it draws its strength from operational excellence and expertise. While the business had serviced the environment for a very long time, the nitty-gritty of the business is known and errors can be fixed without delay. Also, the assets would have increased and the working capital would have stabilized and the argument itself over-time before the growth can start becoming feasible. Diversification and expansion would be done from the business’ returns.
Mechanical Growth: This kind of growth is somewhat sudden and it comes with high risk. This growth has to do with scaling the business too early. It is the dream of any business owner to grow the business and expand as quickly as possible. This kind of growth usually draws its strength from external factors like the owner’s idea, director’s finance, loans, etc. Because the business has not grown to a level where it can finance its growth or expansion; scaling at this level is termed sudden.
When to Scale
- Understand the stage at which your business is currently. If the business is still in the planting stage or running stage, then it is not a good time to scale or expand. Because you do not want to compound the start-up stage hassle. If you are to scale at the running stage, then you should do it if you are sure the business would not be affected because you are scaling or expanding.
- Understand the positive or negative impact it can create on the business. When you scale, do you have to wait for patronage or there is existing patronage that would benefit directly from the scaling. If you are expanding to a new line of production, would you need your marketers to double their efforts because you added to the production capacity? If the answer is yes, then the expansion should not be considered. The expansion should be considered primarily because there is an existing market for production.
- Can the business comfortably buy back 70% of bad products from the market without incurring debt? When production increases, then adequate provision for errors must be put in place. And funds set aside in case of a production error.
It is good to view your business as a baby. You can only give birth to another after the first has been adequately weened. Sudden expansions or scaling could be a death trap. It is good to sail the business through all storms before trying to scale.