I know, every business owner wants to grow. No one starts a business in hopes it stays the same. But growth can also be harmful. Here are a couple of examples of how I’ve seen growth kill or at least hold back and harm businesses.
Case Study 1: A Small Restaurant Wants a Bigger Space
One of the tenants that I was the property manager for had a small Mexican restaurant off the main street in town. She was struggling to be profitable (restaurants are the second hardest business to start, so that’s nothing new). We worked with her to try to help her figure things out and improve. She wasn’t profitable, she was close, but couldn’t get there. However, she had great reviews on every review site. In the year or so she had been open, she had 60+ reviews on Google, Yelp, and TripAdvisor and overall had great scores. So obviously, people were happy with her and knew where she was.
The problem was that she thought she needed a better location. She was not on the main street in town (close, but not directly on it). She was convinced that this was why she couldn’t make enough money. But I’d been there, I’d eaten there. She was busy and the food was good. Again, she had a lot of great reviews. So lack of foot traffic wasn’t the issue. So what was? Her payroll wasn’t the issue either. She was the main employee in a very small space so even with two other employees per shift, she had a pretty small payroll that was reasonable for her.
What I did notice was portion size. I watched her fill a to-go order. She had the full-size clamshell style takeout boxes. I watched her load it with item after item. By the time she was done, she had to literally push down on the middle of the lid to get it close. First of all, this is very unhealthy portion size for any person. But that’s not the business problem. She was handing out her entire profit margin with every order. Her food cost was at least what it should have been plus what profit margin any restaurant should expect. So the advantage she had in rent, payroll, etc., she lost with her portion sizes.
So what if she had gotten what she wanted? What if she had been allowed to move to the larger space that opened up right on Main Street? I can say with a lot of certainty that she wouldn’t have had the bump in traffic she was expecting. But even if she did, unless she immediately adjusted her portions, she would have continued to lose money. Except in a larger space, everything else gets more expensive too. Rent, utilities, insurance, payroll, it all goes up if you move into a significantly larger space.
She refused to adjust her portions, at least significantly. She said her oldest customers were used to it and wouldn’t like it if they got smaller. Well, those customers are the reason she went out of business. They aren’t customers if they’re hurting your business.
Case Study 2: Grounds Maintenance Wants a Second Crew
Another great example of harmful growth was a client who did landscaping. He had himself and two other guys, one truck, and the equipment for the three of them. He had spent about five years growing from a side gig while he worked for someone else, to going out on his own, to hiring the two guys. It was a small operation, but he did a great job running it. He took pride in his work and was always looking for what was missed, how things could be better, etc. I even used him myself and saw how good of a job he did. He wasn’t the cheapest option, but he was competitive and his quality of service was definitely above what you’d get with the cheapest option.
However, he wanted to grow. He wanted to get a second truck, a second set of equipment, and get another crew on the road. He saw it as doubling his business. He was good in that he waited until his crew was truly overworked, they were consistently working 10 hours a day, six days a week. However, when he went out and got that new truck and equipment (for his own crew, the new crew got his old stuff which was still in great shape), he wasn’t ready for it yet. He had great money for one crew, but not enough for two to do well. Since his business didn’t double overnight but he still had to make the payments on his new truck, equipment, and employees, he was negative. The real issue was that he wasn’t on the second crew. He was an owner on his crew, every job was his and he took pride in it. Even great employees will never care as much about the business as the owner. So they just weren’t doing every job at the same level as it would be done if it was done by him. He lost a couple of clients over it and had to make the very difficult decision to cut one of his employees (who happened to also be a friend, making it even harder and later than it should have been).
In the end, he cut back his crew to one, sold the old equipment (he owned it free and clear and had debt on the nicer, newer equipment), and slowed down his growth a lot. By the time he tried it again, he had a much better manager that had as close to an owner’s mindset as you can hope to find an employee and he led the new crew with new employees. So the old crew still did about as well as it did when he led it and all new employees were trained and supervised by him personally.
Summary
Although I think it’s safe to say the growth itself was not the actual problem in either of these cases, they do illustrate how poorly handled growth can be a problem. If the problem isn’t fixed, growth can make the damage much worse and eliminate any time you would have otherwise had to recognize and address the actual problem. That can definitely make the difference between staying in business or not.