Is your Business Growing too Fast? 5 Red Flags to Look Out for
Aug 2022
Getting your startup through the early stages and into a growth cycle is not an easy task. With many businesses failing within the first two years, a business that survives the early days and starts growing is still vulnerable. A startup that’s growing too fast poses some unique challenges which could ultimately lead to failure.
Is your business growing too fast?
According to Fundsquire research, around 20% of startups fail within the first 12 months. Once your startup enters its second year, you might be forgiven if you start to feel safe, but that’s far from the case, now’s the time for growth.
OR, it may be that your startup is growing too fast!
Not a bad problem to have, but if left unchecked it poses a terminal risk to your business.
There are some red flags that become apparent when your
startup is growing too fast. In this blog we cover the most common ones
that you’ll need to look out for.
1. Cashflow issues
One of the most obvious signs that your startup is going through unsustainable growth is persistent cashflow problems. In this instance, there may be high demand for your startup’s services and products, but the cashflow isn’t keeping up.
The cashflow red flags can include:
Unpaid/outstanding invoices. When your startup is in high demand, unpaid invoices can start stacking up, impacting your working capital and leaving your business in a weakened position.
Missing supplier payments. If your startup regularly misses payments to suppliers, this could be a sign that your financial health is poor. Especially if you’re relying on invoices being paid before you can pay your invoices.
These issues indicate that your business has poor cashflow and it’s likely that you’ve grown beyond your means.
2. Quality is lacking
Keeping a keen eye on quality control is always a good idea. But this is especially important during times of high growth. Your startup is in demand for a reason, so when things get busy, you don’t want to be diluting your service or product by offering a lower standard of quality.
Customer feedback is really important during these times and provides you with an early warning that things are not as they should be. Quality management can make the difference between delivering consistent products and services, and letting your customers down.
Is your startup looking to embark on its growth plan?
3. Hiring the wrong people
Part of a startup’s magic in the early stages is the team you put together. Usually a handful of individuals all pulling together to navigate a dynamic and challenging time. But then growth happens and you need more people.
When you start expanding the team it’s unlikely that you’ll have HR colleagues in place, and maybe not even a hiring policy. The decision to interview and employ talent may actually rest with one person, and that person may not be experienced in it.
A red flag that your business could be growing too quickly
is poor hiring choices. For example: hiring people because they’re
available, and not because they’re qualified to do the specific tasks
you need them to do.
4. The growth plan isn't relevant anymore
When a business grows too quickly, focusing on growth goals can sometimes take a back seat. In times of really high growth and demand for services, time and resources can naturally be diverted to just getting through each day. If this occurs for too long, the growth plan can become irrelevant and should really be rewritten. However the management would have to ensure that the team has enough bandwidth to handle the volume of business whilst also being able to make strategic decisions that steer the business in the right direction.
5. Ineffective operations
When your business grows quickly, the operational processes also need to grow to accommodate the extra volume of demand. In the early startup days, a small team of superstars may juggle responsibilities and get things done ‘by any means’, but when demand starts to scale this won't be possible anymore.
A red flag that your business has grown too quickly is that your operational processes can’t effectively handle the increased volume of business. This might be because your team isn’t big enough, or maybe the workflow/manufacturing processes need to be revisited.
In summary
If these red flags are present in your business it might mean you’re growing too quickly.
In this situation, knowing the problem is half the battle. Once
identified, you can take steps to rectify the problems in your startup
and get back on track.
The aim in any startup is to eventually scale your business in a way that creates rapid growth, but the key is to not start this process until your underlying business is ready to scale. Expanding your enterprise too quickly can create vacuums in your operation which may end up being your downfall. Pay attention to these red flags and put your startup on the path to success.
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