You cannot do today’s job with yesterday’s methods and be in business tomorrow.”
It is the pride of the country that the Chinese enterprises are developing in unprecedented speed. The entrepreneur spirit in industrial and commercial society has made China the manufacture center of many commodities in the world. It is no doubt that it will become the center of wider fields.
However, laws of economics show that growth cannot be guaranteed. In the Chinese land we have seen some failed enterprises, the number of which is enough to raise our attention, and many are at the edge of bankruptcy. If the management level is willing to introduce modern management approaches and procedure, a lot of failure in fact could be avoided.
In which aspects will enterprises of high growth commit mistakes? We hereby provide the following five common reasons:
First of all, the decision of expansion made by management level of an enterprise is based on impulsion instead of financial, market and economic analysis. In many situations, the strategy of enterprise expansion is based on the individual ambition but not the real understanding of the capacity of the company. The result is that under the situation of lack of necessary financial resources, the company attempts to manufacture products and sell to the market, which usually will lead the company to a dangerous situation. Maybe it is because of the institution of entrepreneur to have the company’s today, but it is not sufficient to guarantee the growth of the future, unless there is assessment equivalent to market, company’s capacity and its financial status.
Another reason of failure is the reflection of the reasons mentioned above: the company borrows a lot of money for expansion, and the repayment of loan occupies a lot of circulating capital of the company. Besides, the companies in rapid development usually have problems in financial management. A lot of debts have become bad debts because of overdue. There is no reason not to establish a set of more modernized credit analysis approach to appraise the potential clients to avoid crisis in credit.
The third reason why companies of high-growth failure is the increase of operation cost being out of control. Travelling, entertainment, new real estate, luxurious vehicles and mobile phones, all of them can easily find proper reasons. However, when you put all the items together, you will find that the total amount will occupy a high percentage in the profit and loss ratio (P/L) of the company. The operation cost shall be reasonably managed and a set of clear rules and systems shall be established to monitor it. When the growth enter into rapid phase, another related problem is that bureaucratism becomes normal, such as endless memorandums, emails, meetings and reports. How can you know that you become bureaucratic? Compare the number of emails and the number of face-to-face conversions every day, if the ratio is 2:1, you might be already in a wrong way.
The fourth reason why companies of high growth fail is lack of the ability of listening to the opinions from the clients and fast improvement. Delivery and completion of order are usually behind sales, which made the clients not happy. Business sales ability should be related with other operations systems of the company.
The fifth reason why companies of high-growth failure is that the employees have not grown with the increase of business. All levels of employees need education, support, training, encouragement and certain incentives. As reward, they will be loyal to the enterprise and support the future development of it. With the continuous development of the company, they will be willing to help you avoid potential dangers. If you want one year success, cultivate crops. If you want ten years of success, plant trees; and if you want a success of one hundred years, educate people.
By coincidence, if you are engaged in business of high growth, focus on challenges before and not to make problems hard to handle (better than never).