Author: Tom Aranow, Harrington Daniels Advisors
Congratulations! Your company is growing beautifully, exceeding your modest expectations, and your personal income has almost doubled. The future looks bright, and it looks like there may be no stopping you.
Watch out. What you do now may well decide whether your business thrives or withers on the vine.
The business graveyard is full of businesses that started out well. The fact is that mishandling early success can lead to totally unexpected failure. Totally unexpected, that is, if you’re not familiar with some common risks in business growth and development. One of the greatest dangers you will face is taking too much money out of the company at the wrong time.
If your business is really taking off, it means that you’re filling a need and meeting or exceeding your customers’ expectations. It also means that there probably aren’t a lot of true competitors out there. By “true” competitors, we mean companies that are prepared to meet the same needs and provide the same level of quality and service that you do at a similar price.
If you’re the first to meet pent-up demand or if you provide a much better product or service at a lower price, your sales are going to be good. If your costs are low, you’re probably going to make some money. As you make that money, you will naturally want to reward yourself. You worked hard for this. The profits are there, so you give yourself a raise. You might even start enjoying a lifestyle you’ve always dreamed about. Work hard, play hard. You’ve earned it.
Not so fast
But be forewarned, more than likely, things will change. Other entrepreneurs and investors will see the wave of demand you’re riding and recognize its potential to carry them too. Sooner or later, you’ll have true competitors.
When your competitors arrive on the scene, there will be pressure on your prices. Your margins may shrink, and the need for a new and substantial expense will emerge. You will need to differentiate your services from your competitors. That means you will need to market hard, and marketing and advertising require lots of money, perhaps some of the money you’ve been putting in your pocket.
Now, the new house you’ve bought, the membership at the club and the company will all demanding cash at the same time. If you’ve been reasonably efficient until now, you won’t be able to squeeze it out of operations, and now is the worst time to cut back on customer service and quality. The only fat that exists may be in your wallet.
Wisdom here would be to recognize at the outset that your business will grow and develop in cycles. You won’t always be at the top of the wave. So conserve some of the strength, energy and cash you’ve accumulated during your early success. Consider that taking too much now can mean there will be too little later, and that it’s easier to write a check from company savings than it is to change your lifestyle.
Tom Aranow has over 30 years of executive management and entrepreneurial experience in a variety of industries and is the author of over 35 published articles and essays on best practices in business and not for profit management. He is the Senior Advisor for Business Strategies at Harrington Daniels Advisors, in Grafton, and Kohls Group Consulting in Pewaukee, he can be reached at 262-376-9507 or by email at tom@hdadvisors.com
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