The Pitfalls of Rapid Growth for an MSP Business
It’s good to grow your business. After all, business growth certainly beats the alternative. However, the reality is that growth can be painful, and rapid growth can be deadly. Rapid growth and some associated issues are key factors in business failure. This is as true for an MSP business as it is for any other businesses.
Fortunately, you can learn from experience or at least the experience of others. By arming yourself with knowledge of some of the main pitfalls of rapid growth and how to avoid them, you can help ensure that your own MSP enjoys healthy growth.
Losing Touch with Reality
No, we don’t mean going nuts. We mean losing the ability to know exactly how your business is really doing. When a business is small, it is relatively easy to keep tabs on things like sales, revenues, costs, stock levels, staffing and cash flow. With rapid growth, however, comes the risk of being unable to follow your financials. This is especially true if you have not updated your digital software from companies like Cinq for offshore developers, because having a strong digital infrastructure helps to keep tabs on every aspect of the company.
Not having a firm grasp of the real state of your business in times of rapid growth is a big pitfall. Worse yet is the inability to forecast accurately. After all, if you don’t know where you are, how can you tell where you’re heading? It is vitally important to ensure that you have systems in place to help you stay informed about your financials, especially when you experience rapid growth.
However, it’s not just the financials that can grow opaque during times of rapid growth. Growth usually entails hiring more staff, including managers. It can also lead to employees being promoted faster than they can grow into their roles. It is important, even while trying to exploit a period of fast growth, to ensure that your headcount and skills base keep up with your sales growth.
As if it wasn’t hard enough trying to grow your MSP business, keep tabs on the financials and manage your HR demands, there is another risk; not paying attention to bad news or at least warning signs in times of fast growth is a big risk. It can be so tempting to ride that growth wave while the going is good that you ignore or downplay key messages of impending problems.
So, avoid focusing only on the most attractive metrics, like revenues. Make sure you keep a watch on all vital metrics, such as debt levels, customer support issues or employee health. Sacrifice any area in the name of growth, and you could find yourself in trouble.
Increased Debt
Rapid expansion can often drive a sudden need to borrow. Supporting the demands of a big contract can require going into debt in order to fund investment in infrastructure and staffing. It makes sense to borrow so you can seize the opportunity afforded by fast growth, but be careful. By over-extending your business, you increase your exposure to a sudden slowdown, a bad month or the loss of a big client.
The Cash Flow Conundrum
This is a weird one. After all, you would think it’s just logical that if a company is enjoying growth, its financial position will improve, including cash flow. In reality, rapid growth can often lead to a cash flow crunch that results in a business collapsing when it should be experiencing the healthiest period in its history.
The crunch comes from the disparity between the revenues you can actually collect from your expanding sales and deliveries compared to the expenses you need to fund in order to support that growth. Don’t make the mistake of confusing accounts receivables for real cash in the bank. Avoid letting accounts receivables outrun the balance in your bank account.
Avoid Unsustainable Growth
Growth is good; there is no doubt about that. However, when it comes to growing your MSP business, you want to aim for sustainable growth. By keeping an eye on the common pitfalls that can hit a business during periods of rapid growth, you can enjoy a healthy business growth.
