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Can Companies Grow Too Fast?

Is it a case of too much, too young

1Sep

Too much, too young.

A sentiment often used to describe the downfall of athletes who experience burnout after turning professional too young, and child pop-stars, who by the time their 30, look like a pale imitation of their former selves.

When growth strategies are discussed, it’s normally from two perspectives. A company can either grow organically or via mergers and acquisitions (M+A), both of which offer their own advantages. Apple - for example - is a keen believer in organic growth, while Microsoft - which bought 45 companies from 2006 to 2010 - sees no problem in a somewhat inorganic approach.

Not only will a company’s growth strategy impact its company culture and cash flow, but the speed at which it develops. Microsoft’s acquisition of Sunrise - a calendar app producer - allows them to move into that area quickly, and with the knowledge that they have proven expertise ready to guide them. Unfortunately, an M+A strategy isn’t even an option for most start-ups, as most don’t even have the required capital to keep themselves afloat, let alone deal with the costs associated with integrating another management team into their inner-workings.

Organic growth, if approached correctly, should allow a young company to grow while concentrating on improving its core processes. But companies which want to make that step up can’t plod along forever, risks must be taken at some point. And with risk, normally comes money, and with money, normally comes pressure. Some companies use pressure to their advantage and find ways to effectively incentivise their staff to cope with it, some, however, don’t.

That pressure can lead to customer service failures, human resource risks and a worrying lack of cash-flow. When this happens, a company is growing too fast. Apple - which invests in one company per year on average - has seemingly worked within its limits throughout its existence, even spending a relatively small amount on R+D compared to its competitors which also tend to look to M+As.

There’s clearly a fine line between too much risk and being too safe. The world’s most successful entrepreneurs haven’t got where they are today without taking big gambles, especially early on in their careers. Companies, must, however, grow within their means, and not invest in growth initiatives which are going to stretch it beyond what it can deal with. There’s nothing wrong with M+As, but they too must be approached with care, with specific attention placed on the compatibility of the two cultures.

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