Scaling up: Rapid Expansion vs Sustainable Growth
How a Bold Decision Shaped the Future of a Local Branch
As I’m diving deep into creating an in-depth market outlook for Romania (subscribe to not miss the next issue), I wanted to share a personal story with you, one that has been a great teacher to me over the years. I hope it resonates with you and offers some valuable insights, just as it did for me.
The development of our distribution network was advancing at a rapid pace, necessitating the establishment of a warehouse in one of the country's major cities. I meticulously crafted a business plan encompassing the initial expenses, financial support for the first six months, and projections for revenue growth and gross margin enhancement.
Anticipation was high for the CEO's visit. When he arrived, he stepped out of his car in front of the proposed warehouse, observing it with a prolonged admiration. Then, he posed a critical question, "What is the total cost for all this?"
My response was prompt: "120,000 EUR, covering all expenses including inventory, vehicle leases, and three months' salaries for our staff."
After a final contemplative glance at the building, he extended his hand and agreed, "Let's do it!"
Accustomed to German precision, where such an undertaking would typically involve 300 emails and 500 financial revisions, I couldn't help but express my surprise: "Don't leave me hanging. What made you approve this so quickly? Were you convinced by the numbers?"
His reply was invaluable, "No, I was considering whether I can afford to lose 120,000 EUR with you next year!"
I assured him confidently, "But there's no way you'll lose out. I will double, even triple our sales here through this new warehouse!"
He calmly responded, "Before you increase sales, I need to be sure that I can afford to lose this 120,000 EUR investment..."
This, in my view, epitomizes a secure investment: Don't just aim to expand the company for expansion's sake. Seek to grow it sustainably and build a healthy financial future for it!
The CEO's approach revealed a vital business principle: the importance of sustainable growth over rapid expansion. It's not merely about scaling up but doing so with a safety net, understanding the potential risks and rewards.
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