Being popular and being successful are not always the same thing. In business terms, an increase in the popularity of your product or service is the Holy Grail but a sudden rapid increase in demand is almost as difficult to cope with as a sudden drop off and can cause unforeseen problems.
Some businesses manage to transition from niche to mainstream by upscaling with seeming ease, while others struggle to maintain their identity, their customer service and consequently their profits.
Fever-Tree, which produces upmarket tonics and other soft drinks, is a good example of a fast growth business successfully managing rapid expansion. Having listed on AIM in 2014, its results for 2018 show impressive UK year on year sales growth of 53pc with revenue growth worldwide of 40pc putting it firmly at the forefront of the premium brand mixer market. The drinks manufacturer lists its key strengths as including a strong distinctive brand and also, interestingly, a scalable business model; being able to upscale quickly happens by design rather than by accident.
Meticulous planning is needed in order to reap the profits of a fast growth business.
What are the factors you should consider ensuring you can take advantage of a period of growth and avoid the pitfalls?
Keep control of your cash flow
In the early stages of rapid expansion, it is easy to become consumed by the day-to-day task of getting everything out of the door. However, keeping control of your cash flow should remain a number one priority. A recent survey from CB Insights showed that lack of cash flow was the second most common reason that young businesses failed – behind only lack of market need. Rapid expansion is a key danger time as money is spent on new product, new staff and new order fulfilment systems before the business had anticipated these expenses. Planning for expansion with a realistic cash flow forecast is essential for any business that intends to grow.
Protect your business concept early on
With growth will come increased publicity and exposure in your chosen marketplace. Whilst you will have sought excellent customer feedback and publicity for your product, once you have achieved certain levels of recognition, this will mean that others will seek to jump on the bandwagon. First mover advantage can quickly be lost but there are ways you can protect your business concept through the use of registration of any distinctive trademarks or by patenting a truly innovative design. You will need to consider this with an appropriate expert at a very early stage otherwise you may lose the ability to protect your business.
Staff, premises and IT
The practical issues will differ from business to business but generally staff, premises and IT systems are the three key areas where more will need to be invested quite rapidly to ensure that you maintain your customer service and your competitive edge as you upscale.
In certain areas, London for example, the issue of space will be exacerbated by high rents and rates, and businesses tend to seek different options (home working, hot desking etc) before committing to extra space. We have also seen the rise of the flexible working space such as WeWork in London where space can be moulded to suit rapid business expansion.
Keep your employees engaged
Staff tend to be key at this stage as you will need your experienced staff to train those coming in to help with a sudden increase in orders. A business will quickly lose a grip on its ability to perform if its staff are consistently overworked or not trained properly and there can be issues with staff morale, health and safety, even mental health issues where a business is seriously understaffed. Those businesses where staff feel they have a stake in the business – whether directly through share option schemes or through a well-thought-out bonus system – are likely to be able to call on staff to cope with a sudden upsurge to a greater extent than those where staff are disengaged.
When planning to upscale a fast growth business you will need to consider where new staff will come from and foster good relations with recruiters, where necessary. In all of this, management overload should not be forgotten and bolstering the board, possibly with the addition of non-executives, should also be on the agenda.
Check contracts with supplies and distributors
A business’s legal obligations don’t disappear or become suspended during busy periods. If you have binding terms with a distributor which you realise you can’t comply with due to the sudden demand, then enter into a dialogue with the distributor. There may be ways in which you can seek a change to the terms to better suit the new demand such as through a variation clause. Similarly, with your suppliers, if they need also to upscale to meet your demand then check the contract with them and speak to them as early as possible. Some suppliers will welcome and cope with extra demand whereas others may be more likely to struggle. If your suppliers are likely to fall into the latter category, then consider where you could source alternative supplies from to help you rapidly upscale your business.
Think about your destination
Finally, don’t ignore looking beyond the immediate and well into the future. The burden of future proofing a fast growth business falls upon the management team and they need to be considering not just the immediate future but also what the business will look like in 10 years’ time. Upscaling a business rapidly takes time and space to plan but the long-term goals of the business and the landscape in which it operates must not be forgotten. Those businesses where management can perform the contortion of having their noses to the grindstone, their ear to the ground and their eyes on the horizon are the ones who will be able to take advantage of rapid and profitable growth for the long term.
Emma Shipp is head of business services at law firm Hewitsons
