I was watching a fascinating video on the Weather Channel app about Tropical Storm/Hurricane Barry in Louisiana. The scene started with what looked like a grassy country road or trail, soon it looked wet, then a small creek about one foot wide was visible, and before you knew it, a torrent of water was flowing, filled with debris.
These surges come so quickly and it’s one reason people get trapped; they think they have time when they don’t. The same can happen in business. I’ve had a few times when it seemed I could do no wrong when it came to getting clients. New client here, new client there, new client everywhere. Then the work needed to be done all starts hitting at the same time.
For us it means putting in a little more time, doing less marketing, postponing admin work, etc. What about for businesses making or selling a product or labor-intensive service (fixing furnaces, installing systems, etc.) when they experience (usually short-term) hockey stick growth? Here are three traps to watch out for:
- Growth sucks cash and it’s why a couple huge orders can deplete the checking account. We just met with an owner who told us how they bought the rights to sell a new product line from a struggling competitor. First step, stock up on inventory because customers were frustrated about everything being “out of stock.” This means a lot of cash out the door. Then, there’s a royalty on sales, which is a great way to buy something but means less margin until it’s paid off.
- Who’s going to do the work? Simple story, over the last two years I’ve seen 8-10 electrical contracting businesses either on the market or I’ve talked to owners thinking of selling. Every one of them said they could do a lot more business (double in many cases) if only they had the people. Fast growth, big orders, and similar can create a short-term labor shortage, force overtime and its increased cost, or cause delivery delays. Watch out when large opportunities appear in your sales pipeline.
- A question I’ve asked numerous audiences is, “What’s worse, having the capacity to make one million widgets and only selling 250,000 (other than having the capacity for two million)?” The answer is, having the capacity to make 250,000 and selling one million. Your processes and systems will get strained. This assumes the business even has processes and systems, which most small business have in only a rudimentary form. What is really common is when the process is mostly in the owner’s head and there’s a bottleneck because there’s only so much one person can do.
The solutions aren’t easy but are doable. From lining up credit before it’s needed to instilling a culture that attracts good people to working on process improvement all will help if done in advance.
“There is never enough time to do all the nothing you want.” (Cartoonist) Bill Waterson