Business growth is what most entrepreneurs are targeting. However, if expansion is not planned for and controlled, even profitable businesses can fail due to overtrading. Here, Adam Ferrari - CEO of Ferrari Energy, explains ten of the common mistakes that small businesses make when they experience rapid expansion.
Not spending the right amount
There are few balancing acts more precarious than finding the right mix of saving and spending when starting a new business. Spending too much too soon will run your new enterprise into the red such that you may not be able to recover. Spending too little, on the other hand, has its dangers as well. Operating on a shoestring may prevent you from attracting the right employees or from providing a quality product. These conditions may keep your business from ever reaching the all-important profitability stage.
No business plan
Operating without a solid plan is a dangerous position. A business plan defines your goals and your costs, margins, and market position. Even if you realize early success, continuing without a plan is a recipe for disaster. You will lack the means to measure your success and find out too late that you are failing.
Trying to save too much on labor costs
Saying that "our employees are our most valuable asset" is not just a platitude. In most cases, your employees are your company. If they don't meet your customer's expectations, it will not matter the quality of the product or service you offer. Spending a little for the right people will be worth every additional penny.
Failing to plan for contingencies
If you are experiencing success, don't let that prevent you from planning for changes that will inevitably come. Don't get lulled into a state of complacency because of your apparent success. Things will eventually change. You want to be ready.
Not enough market research
Your excellent product is of little value to you even at a great price if you misdiagnose the market's appetite. You need to know that ample customers exist that want your product and your price.
A fatal step for many new enterprises is believing they will get the insurance they know they need later. It will likely never be any more palatable to buy insurance than it is at startup. If you put it off, you probably won't get around to it until after the event that requires it. That may be too late.
Failing to keep business relationships professional
Maybe you always wanted to hire your brother, sister, or friend. Think very carefully about that. Personal relationships rarely work well in a business environment. Sooner or later, someone's expectations will not be met, and Thanksgiving dinner will never be the same again.
Poorly planned partnerships
A poorly planned business relationship can often look like "too many cooks in the kitchen." In the end, someone needs to have the final say. It's great to talk it through, work it out, and negotiate, but if an impasse is reached, someone needs to be able to move the ball forward.
Running afoul of IP laws
Even if you can provide a widget like your competitors, but at a better price, it doesn't mean that you can do so legally. Your competitors will be watching closely to ensure their intellectual property rights are not being violated.
Spending money you don't have yet
One of the unwritten laws of starting a new business is "things will take longer and cost more than you expect." Don't deplete all your capitalization funds. Anticipate that you will need more than you think.
About Adam Ferrari
Adam Ferrari is an accomplished petroleum engineer and is the founder of a private oil and gas company, Ferrari Energy. Throughout various roles in the oil and gas industry, Adam was inspired to learn more about property rights and the inner workings of petroleum exploration and extraction. After gaining expertise in the energy sector, Adam obtained knowledge of the financial industry through his time at an investment banking firm. He then pivoted to bootstrapping his own business from the ground up as he blended his energy and finance knowledge.