Businesses are living organisms. They need a constant supply of resources to sustain themselves, and they produce discardable by-products as a result of their day-to-day activities.
And, like any living organism, businesses need to grow and evolve. Otherwise, they risk dying a slow and painful death, and that's if the incumbent competitors and the hungry new startups don't eat them up first.
Growth is essential to the survival of most businesses. It enables businesses to buy much-needed assets, to hire the best talent available in the job market, and to capitalize on new opportunities as they pop up.
Unfortunately, some businesses may have a harder time growing than others.
For instance, some businesses grow at a break-neck pace for the first few years only to slow down after and reach a painful halt.
Try as they might, these businesses can't get themselves out of the rut they are in, and without understanding the reason behind their plight, these businesses may never continue the upward trajectory that had seemed so certain at the beginning.
So, with that in mind, let's investigate why some businesses may find themselves plateauing despite their best efforts:
Main reasons businesses stop expanding:
Most reasons for a business stagnation can be attributed either to the natural life cycle of a business or to a strategic mistake made by the people in charge.
Stagnation due to the natural life cycle of a business:
From product development to maturity, businesses go through different phases throughout their lives. And, not only does every phase exert different demands on a business, but for a business to move from one stage to the next, it also needs to develop new skills and acquire new assets, ones that might not have been so useful earlier.
Here are a few reasons that could stall a business's growth:
1. Become too big
One of the main problems with growth is that it is relative. If a company brought in gross revenue of 10 million dollars last year, then increasing its gross revenue to 15 million dollars is an impressive feat.
On the other hand, if you take that 5 million dollar increase and add it to a company with gross revenue of two billion dollars, then those extra 5 million dollars are hardly worth mentioning at all.
As a result, when a company grows past a certain stage, it needs to venture out into new and greener markets should it want to maintain its levels of growth. The alternative is for the growth to slow down until it stops once the market has become saturated.
2. Market maturity
Businesses aren't the only ones who go through predictable life cycles. Markets and entire industries also follow a beaten path.
When a novel service or product finds its market, there is always a small period of time where a few companies control most of the supply. So, they can jack up the prices as much as they want.
This, in turn, means unencumbered growth as the demand just rises.
However, rising demand and limited supply attract competition, and before long, the market gets swarmed with similar offerings, substitutes, and everything in between. As a result, prices go down, and with them, both the profit margins and the growth opportunities plummet.
Once the market becomes saturated, the only criterion businesses compete on is the price, and the once novel offering has turned into a common commodity.
This cycle plays itself out time and again, and businesses that aren't aware of it may find themselves stuck in the middle of the turbulent waters of the market without a paddle.
Stagnation because of strategic mistakes
While some companies may slow down because of extraneous circumstances, other businesses may come to a screeching halt unless they plan ahead and keep a vigilant eye for changing trends in the market.
Here are a few of the key pitfalls some businesses fall into:
3. Lack of capital
You've probably heard the saying, "It takes money to make money."
Well, it's true. A business needs cash reserves on hand to be able to capitalize on opportunities that present themselves.
Without working capital, a business must slow down its turnover. A business that is cash poor won't be able to invest in the assets necessary to help the company grow.
4. Complacency
When a business is starting out, it has to work hard to validate its idea and to build a strong customer base.
However, once through this initial and challenging ordeal, many businesses grow complacent. They become too comfortable where they are, thinking that their position in the market is unassailable.
This is never correct. Businesses should always have plans and strategies to expand, and they should always keep a close eye on the competition. They would also do well to develop goals for both the near future and the long-term, and these goals need to be updated regularly.
That said, it is worth noting that this complacency doesn't have to stem from over-comfort; it can also result from fear. When a business gets too big, venturing out into untested waters can be scary.
Big companies have a lot of money to lose, and they prefer preserving their existing sources of revenue rather than scouting for new ones.
5. Lack of management
Managers are a lot like coaches. Even though they rarely get on the court themselves, their presence can make or break a team.
A good manager will keep their employees engaged, will help them with managing their time and prioritizing their work, and will bring the best out of every team member, helping them achieve self-actualization.
The problem is that as some companies grow, they underestimate their need for good managers. When a business was still in its infancy, it was enough to have the founder act as CEO also and manage the whole thing.
This model works up to a certain point: once the company starts hiring plenty of people, it will be tough, if not impossible, for one person to manage the whole thing on their own.
Also, a company that makes 100 million dollars in annual revenue is a different beast than one that makes 5 million dollars, and the former will need a professional, dedicated team of managers who know how to take it to the billion-dollar level.
This might mean that at certain stages, some managers will have to be let go to make room for new professionals.
Standing back and seeing the bigger picture
Even though growth is critical for the survival of a company, not every growth opportunity should be pursued blindly. In other words, it can be dangerous to pursue growth for growth's sake.
Businesses need to be able to stand back and perform a cost-benefit analysis of the opportunities in front of them before making any long-lasting decisions.
Even if the opportunity makes sense on paper, businesses should take the time and ask themselves how it fits into the broader strategy and how this opportunity will get the entire business one step closer to their vision.
Guest Author
Heather Reddings is a part-time assistant manager, solopreneur and writer based in Aurora, Illinois. She is also an avid reader and a tech enthusiast. When Heather is not working or writing, she enjoys her Kindle library and a hot coffee. Reach out to her on Twitter.