In today’s business world you often hear people say things like, “If you aren’t growing then you are dying.”
While there is some truth to that, it’s also a loaded statement, and very misleading. There are plenty of businesses out there that are doing just fine, staying the size they are. Plenty of businesses take the slow path to growth as well.
I’m a big proponent of the latter, and I speak from some hard learned experience.
The Danger of Growing Too Fast
One of the dangers of growing too fast is making poor decisions. Allow me to tell you a story about a real life event that happened when I was running my organic energy bar company.
About two years into running our business we got kicked out of the commercial kitchen we were sharing with some other tenants. One of them was growing super fast and needed the extra space in the production facility.
This left us scrambling to find a new space. Being in Austin, Texas made this extremely difficult. While Austin is a hotbed for food startups, it also makes it difficult to find shared kitchen space.
Since we were unable to find a shared space, we decided to move just outside the city limits so we could build out our own space in a short amount of time. Building within the city limits would have worked out better for us but it also would have taken months, which was time we didn’t have.
Sounds Exciting, But It Wasn’t
It was extremely exciting to have our very own space. It was HUGE though. Way bigger than we needed at the time, but our thought process was that we would quickly grow into it over the next couple years. While we did grow, we did not grow fast enough to meet the demands of increased rent and property taxes. Even with subleasing space, we never were able to make it work well.
This resulted us bleeding cash. The extremely high rent started making it difficult for us to grow. A very high percentage of our overhead was going to rent, which meant we couldn’t support our retailers with marketing and promotions.
This created a lot of stress for us. We moved into a space that was too big for us. We THOUGHT we would grow into it but circumstance prohibited that.
What Happened Next
About four years into our lease our growth had stagnated. Mainly due to the inability to support existing accounts, and lack of funds to hire a sales team.
This led me into a super-disciplined hustle mode in attempt to save the business. I knew our lease renewal was coming up, and we couldn’t afford to build out another smaller space, so we decided to try our hardest to grow and get enough demand to support staying in our current space.
It worked…but then again it didn’t!
That year I managed to get the brand into: WalMart, 14 International Airports in multiple terminals, and several other grocery chains on the east coast.
But this then created a whole NEW problem. We didn’t have the cash available to support the growth. And since our business had been struggling over the past few years, investors wouldn’t touch us with a 10 foot pole without taking a majority stake in the company. Financing didn’t make sense either because the interest rates destroyed our margins.
The end result was selling our business prematurely. I loved the business. I wasn’t ready to let the dream die, but with our lease coming to an end we couldn’t sign on for another five years with even higher rates. With the inability to support the new growth, we ended up turning the business over to new owners that are now running the business today. Thankfully they breathed new life into the business with a cash injection, and the business is now growing strong again.
What Should Have Happened
Hindsight is 20-20. Here is what should have happened.
Back when we needed to move into our own space we should have taken out a lease on a much smaller facility. We were even presented that option, but we declined. Thinking we would need the space eventually. That was one of the absolute worst business decisions I ever made.
Smart and slow growth beats rapid growth any day, especially when you are bootstrapping it with VERY LITTLE investment funding. It would have been much better to be stretched thin in a smaller space we could afford and have to find a second space, or just make the smaller one work. (note: the company is now double the size it was when I ran it and the production space is now significantly smaller).
Had we made a better decision about what sized space to move into, there is a good chance the original founders would still be running the business today.
It’s All About Managing Cash Flow
When it all comes down to it, this was really all about managing cash flow.
After leaving the company I started direct to consumer CBD brand, Hemp Daddy’s Therapeutics, and it has been profitable from day one, and has supported its own growth.
With Hemp Daddy’s I stayed lean. I planned out profitability from the start. I never spent when I didn’t have the funds, and I PLANNED for growth, which meant I set aside money every month to pay for the growth with cash. No outside funding needed!
The Lies We Are Told
We are fed a lot of lies when it comes to profitability. One is that you need investment cash to grow, and that you won’t make any money until you see an exit. Another lie is that you need to take on debt to grow.
Neither one of those things are true. It’s very possible to run a profitable business from day one. If you don’t believe me check out Profit First by Mike Michalowicz. This book was game changing for my CBD business. Unfortunately I found it too late to save my original business (but thankfully it lives on due to new ownership investing cash into the business, something that wouldn’t have been needed had I not been so foolish).
What Can You do?
The best thing you can do as a small business owner is to grow slow and grow smart. Make truly wise business decisions based on facts, not intuition. Know it’s also better to be conservative than to be foolish. It’s much easier to recover from a conservative mistake than it is from a big foolish mistake.
Photo by Marvin Meyer on Unsplash
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