Some of the Risks Associated With Growing Your Business
Business growth is something that most entrepreneurs want to do. Some will do it at any cost. This is because there is some prestige associated with having bigger offices, more staff, and higher production. This is a double edged sword, however. Such expansion comes at certain costs which are not always taken into consideration. Let us have a look at some of these.
Higher Costs and Lower Flexibility
Economies of scale is often a reason for a business to choose to expand. This is when the cost per unit of production or per sale falls as production or sales increase. This is true for a lot of industries such as car manufacturing, electronics manufacturing, and power production. In many situations, something called diseconomies of scale occurs. This means that profit margins actually fall as scale increases. This can sometimes turn into loss. This is why you sometimes see companies downsizing. The reason for this is that they did not consider the underlying costs. Another issue with expansion is reduced flexibility. This means that any business decision is much more risky than it would be otherwise. It is much easier to make alterations to your products and services when you have a smaller operation. Making a large product launch which is disastrous could put the entire business in jeopardy.
Herding cats is a phrase which comes to mind when thinking about this. Cats are notoriously hard to train. A group of cats is impossible to control. An issue which is endemic with small businesses is that it is not easy to find people that you can trust. This is because many small businesses rely heavily on the vision of the founders. It is not easy to transfer the same level of skill and dedication onto others. Growing in size also means that more managers are involved. They may not have the same goals for the business. In order to ensure harmony, there will be a need for more management meetings and similar things. As a result, efficiency could far. Efficiency could drop significantly. This will also need the development of new ways of managing people. New software may need to be developed.