Is It A Common Problem For Businesses To Grow Too Fast? How Can That Possibly Be A Bad Thing?

Is It A Common Problem For Businesses To Grow Too Fast? How Can That Possibly Be A Bad Thing?

Key Takeaways:

  • Businesses can definitely grow too fast—that is, faster than the infrastructure of the company can support. This often leads to disappointed customers and bad reputations. You can avoid this with careful planning.
  • When the issue with your company is a top manager or investor, it can be complex to deal with, but it is possible to do so. It is very helpful to both vet and choose your initial investors/co-founders carefully, and to write clauses into your foundational documents that give you legal pathways for separating the company from problematic top managers and/or investors.
  • It is essential for business owners to be able to recognize their strengths and weaknesses, and to replace themselves in a particular part of the business where they are weak rather than trying to do everything themselves.
  • It is always best to have legal advice as early as possible. Entrepreneurs should also trust their gut if they feel like something is “off” and seek legal help at that point.

Growing quickly is the dream of many entrepreneurs, but there is a such thing a growing too fast. This can be devastating to a business when it overwhelms the systems in your business and causes them to break.

I know this from experience. I owned a company that grew too fast and had systems that couldn’t keep up. For perspective, this company nearly doubled in size for three years in a row.

However, what started happening is that growth overtook and stressed every part of the business, of me as an owner, and of every member of the team. The financial systems started to break, and my standing started to break. When that happened, the business literally started to disintegrate.

It’s important to note that we did not plan for this level of growth. If you plan for it, that’s a different story. With the proper provisions in place, it won’t be too fast. You will be rolling along as planned.

If you don’t plan properly for growth, though, you will become masters at marketing, selling and growing revenue. Unfortunately, you eventually realize you don’t have the people or the systems in place to service the orders. This quickly leads to developing a bad reputation, and the rest of the business can crumble from there. You will have disappointed customers, you will have bad reviews, and your booming demand will drop all the way down again.

Growing too fast without proper planning is a very good way to develop a bad reputation or go out of business quickly.

What If Top Management Or Investors Are Part Of The Problem? How Do You Fix Those Issues?

Dealing with challenging top managers is usually a little simpler than dealing with challenging investors.

Top managers occupy seats with significant accountability within the organization. If you believe the issue lies with the manager, first determine what the manager is accountable for and whether they are performing at a level that is consistent with what the business needs.

When you ask the accountability question, you are forced to develop a specific job description that includes metrics upon which you can make an assessment. Once you have that established, you can explore follow-up questions:

  • Do they actually understand their job?
  • Do they want their job?
  • Do they have the capacity to do their job?

If the answer is no—that is, if they don’t get the job, don’t want the job, and/or don’t really have the capacity to do the job, then you can adjust accordingly. This could mean terminating them and replacing them, or it could mean moving them into another seat within the company.

Of course, these top managers are often the people who helped you build the foundation and the equity of the company from the start, so this can sometimes be complex. This highlights further why it is essential to vet the people you go into business with early on, and also to ensure that you legally have a right to cause an exit for a manager that becomes a problem.

A lot of that same due diligence is necessary when it comes to investors, and ideally it should happen from the time of the actual foundation and formation of the company. You can consider the relationship between yourself and a “from the ground floor” investor like a marriage of sorts.

Once you’ve contracted with an investor, you are proverbially “married” to that investor. It becomes a lot more difficult to become “unmarried”, and the process of a business “divorce” can get incredibly nasty—among some of the nastiest divorces you can imagine. Investor disputes can get similarly nasty. You have people who don’t want to be in the business relationship together (this is exacerbated when the business is a profitable business).

Problematic investor scenarios usually involve a more challenging set of circumstances, because it’s not like you can just “fire” the investor as you could a top manager. In order to prepare for this possibility, you should consider modifications to your organizational documents that create up-front agreements on methods to resolve issues between founders and investors. Usually, this will involve something like buyout options or empowering a board with authority to end the relationship between the company and an investor if the investor’s course of action is inconsistent with the direction of the company.

Obviously, the challenges of problematic managers or investors are difficult —but both are doable, when you incorporate a method for dispute resolution that all parties agree to up-front.

How Important Is It For Business Owners To Recognize Their Weaknesses? What Happens When Business Owners Don’t Learn To Recognize That They Could Be Part Of The Problem?

I think that it is critical to be able to accept every part of yourself in order to function successfully as a business owner or an entrepreneur.

Recognizing what you love, for example, can be incredibly powerful. Entrepreneurs are a group of go-getters that see opportunity in risk. They are people who take their own destiny into their hands, and they are accustomed to dealing with everything themselves. However, as your business grows, it is critically important to identify and cede the parts of daily operations to strong partners and employees to manage the parts of the company that you don’t love and aren’t great at. Find people who love those parts of the business and they will keep the business flowing.

If you insist on handling everything yourself, just know that eventually you will suck the energy out of the company, and likely slow your growth opportunities significantly.

Similarly, compromise becomes very important, especially if you have co-founders or equal business partners. You need to be able to hear, accept, and negotiate with your business partner – especially when you hold apparently opposing views.

Know yourself. This simple concept is very important to high level entrepreneurship. This skill will help you quickly identify the areas in which you’re not the best so that you can replace yourself in the roles where you are weakest. You will immediately find a new level of personal freedom and you will stop being the bottleneck for your business in that particular area.

When Should It Become Clear To Business Leadership That The Company Needs Call In Legal Help To Right The Ship?

In general, my recommendation is that you establish a set of advisors—including legal advisors—as soon as possible. Ideally, you should have these advisors in place from the time the company is founded. It is always better to have legal advisers around you sooner rather than later.

However, speaking more generally, entrepreneurs often know when there’s something wrong. They may not know exactly what it is that’s wrong, but they do know that there is something wrong. It’s a feeling. In small-to-mid-size businesses especially, there is a close personal and emotional connection to the health of the business. This is something that you’ve created. It’s something that you’re building or have inherited, or it’s something that you own.

From a very emotional perspective, entrepreneurs can sense how their business is doing, almost instinctually.

So, the moment that you have a sense that something’s off, even if you don’t know what it is, that is the moment that you should make the call to legal advisors. Do not ignore that feeling, because your sense, your emotional intelligence, is literally what will set you apart from other entrepreneurs.

It’s a scary thing to ask for help and admit there’s a problem, but fear can oftentimes be the other emotional point of intuition for entrepreneurs when trying to make the best possible decisions to preserve their business.

For more information on Business Restructuring Law In Michigan, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (248) 246-1166 today.