Company executives should establish a growth ceiling for their businesses to avoid the risks associated with rapid expansion, according to Scott Tibbitts, former CEO for manufacturing firm Starsys, in Surviving Famine to Feast.
Revenue growth that exceeds systems capacity is a threat to the company and can be detrimental to long-term success, says Tibbitts.
"Conservatively determine a growth rate that you can finance, that you can hire properly into, that will not outstrip your systems – and stick to it," he says.
When deciding how much additional operating capital is necessary for growth, be aware that growth can often lead to systems becoming less efficient, says Tibbitts. He suggests multiplying projected growth cash needs by 1.5 to get closer to the actual amount.
To stay under the growth ceiling, Tibbitts advises getting picky about taking on new business – it should make the company better, not just bigger. New business should be able to be handled using existing staff and systems and preferably even make the company more efficient.
Read more about managing rapid growth in Surviving Famine to Feast.
