The Five Biggest Roadblocks to Growing a Successful Business
When we first met Ted we realized we were working with a highly instinctive entrepreneur. He had three huge problems: Inability to meet rapidly growing demand, inability to make good hires, and a complete lack of adequate financial systems.
Over the course of two years, we helped him reorganize his staff structure, implement training and development, bring in a highly skilled accountant, and implement a brand new financial system. We also guided him through the process of getting funding from non-traditional lending sources.
Less than two years after we started, Ted’s operation went from a $2.5 million company with 25 employees to a $9 million company with 90+ employees. He is now set up to grow his company to $25+ million within the next three years.
The Challenge of Growing A Successful Business
After graduating, I had the reason and opportunity to launch a small business. However, I had no real training other than reading a few “How To” books and reading business magazines like Inc. and Entrepreneur.
I had no idea that businesses expand in predictable stages of growth. Likewise, I didn’t know that each business eventually meets with typical pitfalls that cause many entrepreneurs to fail.
As the old saying goes, “I wish I knew then what I know now”. I had to learn a great deal by making many mistakes and having to fix each one. Since that time, I’ve started eight different businesses. I sold the last one for eight figures. Through that experience, I’ve learned how to recognize the growth-stopping patterns and pitfalls and how to successfully manage through them.
These days, I work as an advisor to both new and seasoned entrepreneurs. In my advising work, I’ve noticed five major areas where entrepreneurs tend to get stuck. Most entrepreneurs never get past these roadblocks and therefore never manage to grow their businesses to the next level.
The good news is that with the right guidance and knowledge, growing a successful business can be a far less treacherous and anxious process. It is possible to understand and address growth roadblocks before they halt the development of your business.
Recognizing the Symptoms
As your business expands, you will have growing pains. It’s inevitable. For example, you may start to experience serious issues with things like cash flow, staffing or customer service.
When one or more of these areas becomes a serious and unsolvable mess, it means that you have problems that are symptoms of something larger. If these issues continue for more than a month, it probably means you are coming up against structural or foundational flaws and weaknesses. So be alert, this might be serious.
Structural issues are one of the realities of business growth that can only be solved by having a larger overview—one that puts the problem in perspective. As Albert Einstein famously said, “We cannot solve our problems with the same thinking we used when we created them.”
That being said, most business owners will only know how to react with tactical solutions that provide temporary fixes. One of two scenarios is the result.
First, the business will continue growing but the breakdowns and problems multiply and spin out of control.
The other scenario is that the business is never able to grow beyond its current stage. This happens because the ongoing problems take up an unfair share of the time and resources of the owners and staff.
Does this sound like you? If you have been in business for more than two years, this may be a good description of your situation.
In my experience, the range of issues tend to fall into five basic categories. In this post, we examine the first of these five fundamental roadblocks and learn how to address it.
The Five Growth Roadblocks
- Cash Flow
- People
- Organization
- Business Development
- Business Model
1. Cash Flow
The Problem
Problems with cash flow can take different forms. However, when it comes to growing a business there is one fundamental rule. Even if you have enough cash to get going, you may find that you don’t have enough to keep growing.
I can’t underscore the importance of cashflow strongly enough. In fact, according to research cited in the 2013 Global Entrepreneurship Monitor report, “more than half of the business closures in the United States were due to a lack of profitability or problems obtaining finance.”
The stark reality is that growth requires capital. You must be able to feed your business with cash in order to grow larger.
This leads to two questions, “How do I know if I have enough capital to grow?” and “How do I get the capital I need?”
If at this stage you don’t know the answer to either question, you may endanger the life of your business by trying to grow larger.
The Solution
The above two questions can be answered by developing deeper visibility into your finances and business processes.
On some basic level (this varies for each business) you must be able to know your overall financial position, how much cash you have in-house and what’s expected in the next 30, 60, 90 days.
You will need to know your monthly payroll nut and mission-critical operating expenses—your breakeven number.
Last, you will need to have the means to see your financial problems and infer solutions from the key ratios and numbers that drive your business. This is what they mean by “running your business by the numbers.”
This way of doing things represents a higher level of professionalism that takes some time and discipline to obtain. I’ve seen a few people do it in less than six months. Most will take longer.
The truth is that if you want to grow safely to more than $3 mil, $5 mil or $10 mil in revenue and beyond, you will need professional accounting help.
Unless you graduated with an MBA in finance, you will need a proper accountant to set up your books and projections. You will need to develop and hire the right kind of financial help that enables you to install the five following capabilities and skills into your business.
- A reliable and up-to-date accounting process.
- Proper Credit and Collections Procedures.
- The ability to generate, read and interpret monthly financial statements — P&L, Balance Sheet and Cash Flow Statements.
- The ability to create a multi-year financial budget and forecast cash flows.
- A good relationship and loan arrangement with a bank.
Very few entrepreneurs start out with any real-world understanding of these five areas of financial knowhow and expertise. And I’ve never met a sustainably successful entrepreneur who didn’t have these five points properly installed.
Some business owners are better at reading and interpreting financial statements. However, the most successful people surround themselves with experts who can.
It is only by staying close to a budget and knowing where you stand with cash that allows a business to grow to higher levels of revenue and profit.
This path is the only solution to the first stumbling block. The world is littered with the failed businesses of owners who thought otherwise.
What Next?
As a business owner, if you feel like you can’t get ahead or get anything done then you’ll want to read As a business owner, if you feel like you can’t get ahead or get anything done then you’ll want to read The Second Biggest Roadblock to Growing a Successful Business…
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