Growing Pains: The perils of expanding too quickly

Growing Pains: The perils of expanding too quickly

With any business, the goal is always (or almost always) to scale. Scaling obviously allows businesses to increase turnover and, when done well, to optimize costs, in many cases simply by applying economies of scale. When it is not done in an orderly manner, however, it can pose risks for the company and, when growing fast, this risk increases.

One of the main problems businesses can encounter is operational risks. When growing rapidly, if one has not defined the protocols clearly, they run the risk of inefficiencies arising that can lead to bad service or an increase in costs that were otherwise unforeseen. Bear in mind that not everything is solved by creating protocols, but it must be ensured that these are transmitted to the people who are going to join the organization to cover new positions correctly and that they have the appropriate supervision to maintain quality of service while ensuring that possible inefficiencies do not generate an extra cost.

At an operational level, rapid growth has very different risks depending on how a business grows. If it grows in the same location, operations are simplified exponentially (and at the same time costs will remain lower as there will be no need to duplicate structure). In these first steps, one of the typical mistakes is to open a second location that should simply replace the first one and instead of doing so, personnel costs are doubled by maintaining two operational locations. It is easy to see this from a distance but can be more difficult to observe when it happens under your own nose. Growing in one location until a workspace reaches its limit and then moving to a replacement location minimizes costs and operational risk.

Aligned with both of these factors is the issue of protocols. These need to be created, implemented, passed on, re-implemented and revised to adapt to new locations, different markets and/or regulatory frameworks. When a single workspace grows to two locations is a pivotal moment in creating a flexible workspace brand as this is the time when a large element of control is relinquished. This is the time when it is imperative to have a team that shares a brand's vision and allows the company to stay connected to the day-to-day reality of the spaces.

These problems increase with distance and cultural changes in other markets. If a business grows in the same city the risks are lower at an operational level than if it is done at the other end of the country or in a different country altogether. In the same city, for example, operators can be much more flexible with their staff and, in case of a problem, send support from one location to another.

Growing rapidly in different cities, and even more so in different countries, means that if you have not done a thorough job beforehand to comprehensively understand the local ecosystem, you can easily make mistakes in the selection of locations. This is something that happens at all levels, even with giants in the flexible workspace industry. Don't underestimate cultural differences, and don't underestimate how the perception of what is an acceptable commute varies because it can vary as much from city to city as it does from country to country.

When setting up in a new city there are clearly different regulations at the space level but these increase exponentially in a new country with a totally different regulatory framework. This is not only important at the level of construction of the spaces themselves, or of the contracts signed with clients, but it can also affect the relationship with employees in these new countries. It’s vital to remember that success largely relies on excellent service, so expert advice at the labour level before entering a new market is essential.

In this sense, high-speed growth can also take its toll on "old" staff, especially if there is no expansion team in place. It is normal to ask for occasional efforts from the team, in fact, I think it is healthy, especially if they are rewarded. However, when these efforts are constant, without any reward or compensation, the team will eventually experience burnout and end up leaving to one of your competitors who will welcome them with open arms, especially in those markets where the industry is growing rapidly.

At this stage, the founders are also constantly looking for capital to be able to continue with an expansion that due to its speed usually requires a lot of investment with little or no time to recover it. This work is a challenge in itself for the founders and the part of the team that supports them and can make them somewhat disconnected from reality, which can cause frustration in the employees who are in charge of the day-to-day, since it is very possible that they perceive this as a loss of focus on the part of the management or at least as a distancing that will undoubtedly affect them. This effect is maximized when part of the team deals with the same expansion and increases the risk of errors in those people who are dealing with two very different roles.

And all this brings us to the last point, and while I would not say that I have left the best for last, it is certainly of critical importance because it puts the company at risk in a significant way and in a relatively short period of time… cash flow.

All the above factors create the perfect storm at a financial level. On the one hand, we have extremely fast growth that does not allow the business to recover their investment before recovering. On the other hand, possible inefficiencies, duplications, etc. lead to a more than possible increase in costs not originally planned for. If costs are not kept under control and/or we have unforeseen deviations that prevent us from having a cash flow problem. Obviously to all the problems mentioned above, we have to add the typical problems that generate the reform of spaces that contribute to increasing this risk.

Obviously, all this will not stop you from wanting to grow, nor do I intend to discourage you from doing so. The truth is that there is nothing more satisfying than seeing your project grow and embrace new neighbourhoods, cities and other markets by taking your concept to as many places as possible. But to do this we need to plan and keep our house in order, making sure that costs don't skyrocket, keeping an eye on them, and anticipating any situation that could cause a cash flow problem.

Bottom line. Plan your movements, try to understand each new market with the mentality of a local and see how your external perspective can offer something that this market does not offer, do not ask your staff for the impossible and keep in touch with the day-to-day and the reality of the spaces. But above all, keep constant control of costs and take care of your cash flow: it is the lifeblood of your company and uncontrolled costs are a haemorrhage that must be stopped.

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