Growth Strategy, When to Step Up Capacity.

Small and home-based businesses need to operate as efficiently as possible and following a growth strategy is a significant part of that equation. Knowing how and when to grow is essential to expanding as fast as possible without overextending.

In the survival phase growth is not the focus but as a small business matures growth should be addressed. Growing too quickly puts excess burden on your system. Mentally and physically if you are taking on too much change too quickly you will burn out and the company will not perform to its potential. Even worse, if financially the additional capacity requires more than what you have in your bank account you may be buying yourself into closure.

On the other side of the coin growing too slow has the possibility of leaving a lot of opportunities and money on the table. Unless you are locked into some strange niche that only you know about you need to be thinking about how your market is changing and how you are going to react. With time small businesses fail so an intentional growth strategy should be in place. Having such a plan is a sign of a healthy company.

You are your benchmark

Don’t compare your growth with anyone other than yourself. If your market is blowing up and you aren’t seeing the same trend you may want to reassess your situation, but don’t get caught up in performing according to any other benchmark than yourself. Many businesses are taking part in your market but if you want to truly succeed keep the focus off of the competition. Trying to emulate a move a competitor makes is like trying to wear cloths that are not your size. Your path is your own.

How is your capacity?

Your capacity dictates your ability to grow. Too little capacity and it will be noticed in your services, to much capacity and operating expenses will be high. If you are sitting on an endless trust fund and can support a bloated overhead that is great, go for it. If you are like the majority of people out there you are probably hugging the other end of the spectrum. Knowing at what point you need to step things up is vital for long term success.

A great indicator of one’s capacity is due date performance. Are you providing your product or service consistently on time? If not you may have too little capacity. If so, you may have enough or too much capacity. In one job I worked I gaged our capacity by the number of people calling complaining they hadn’t seen their parts yet. The more calls I received the closer to capacity we were.

Knowing at what point you need to increase your capacity.

A good number to work with is 70%. The output of a resource will decline as it is taxed beyond 70%. This truth is easily illustrated in the capacity of a road way.

We are not shown the capacity or the volume but we are shown what happens when that ratio approached and exceeds 100%. The graphic has 90 to 120% highlighted but notice when our travelers start hitting their breaks. The first signs show up shortly after reaching 50% capacity but they really start to drop off when they hit the 70% mark.

As a business, your capacity works the same way. Knowing this allows you to take the appropriate measures before your customer base realizes you have too much on your plate and no way to meet the demand. Using this metric is also helpful in making sure you don’t grow too much too fast. Increasing capacity to handle 10 times the volume a small company will see in the near future is a sure fire way to bring a company to its knees.

How much capacity to add?

The amount of capacity to add will be a function or your market and your growth strategy. As a hint, the overall throughput of a business is limited by a single resource. So, don’t think you have to double the capacity of every resource in order to double your total throughput. Identify the resource that is the constraint and follow the 5 focusing step of the Theory of Constraints to improve the system. This is by no means a hard science but it is a great place to start and a good general rule to follow. If you are not familiar with the Theory of Constraints we have some write ups available.

TJ

About TJ

Engineer and Entrepreneur