How fast should you grow your company? I get this question from to time by startup and early-stage companies. Assuming that there is demand for your product/service and the sales are there for the taking, here’s my response:
- Competitive environment. Do you have a defensible competitive advantage, like a patent? Or, another way to look at it is can your product/service be easily and quickly copied? If so, then you might need to race forward in growth to prevent competitors from copying, catching and passing you up.
- Market state. Are you riding a consumer trend? If so, then you might need to grow quickly to take advantage of that trend.
- Financial pressures. How quickly do you need to achieve profitability? Do you have funding to get you to profitability without fast growth?
- COGS. I have yet to meet a startup or early-stage company in consumer products who does not have a COGS problem. That is, their COGS is very high because they don’t have the economies of scale that comes with size and/or they don’t yet have the expertise (usually gained through experience or hiring the right people) to source materials. Quick growth can mean economies of scale to help lower COGS.
- Personal goals. Do you thrive on fast-paced, fluid and changing environments? Do you want to attempt to sell your company within a 10 year time frame? If so, then you might want to grow fast.
When is growth too fast?
In my experience, growth is too fast when:
- You lose budegtary control and expenses start to spin our of control and you can’t stop them.
- You make lots of stupid mistakes.
- Your marketing/sales spend is not efficiently retaining customers. That is, you might do a great job at trial or one-time buys, but not at retention, thus your marketing/sales is constantly working to replace the customers you are losing. If this is the case, then you may very well be building a house of cards in your business that will fall apart when you run out of first-time customers.