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Unicorn or Bust. The Perils of Rapid Expansion and Early Business Failure in the UK

As part of my mentoring work, I recently met with an aspiring entrepreneur who wanted to create a £3million pound business within 3 years. This is based on a product they have not designed or tested yet, with no research, business or marketing strategy or online presence.  They had an idea based on a Tik Tok video they saw demonstrating how to create passive income using Amazon KDP.  An ambitious idea and goals for a great niche. I’m not to say whether they will achieve this or not based on a single interaction and I certainly gave them a place to start from. However there is a lot of work that goes into becoming an overnight success for most of us.

According to Failory there are over 1200 unicorn businesses worldwide in 2023, with the US and China accounting for the largest territories; and UK businesses contributing to 4% of this.  Unicorn status is given to private limited companies who are under 10 years old, have not been publicly listed or bought by another party and receive their billion pound status.

 


There has been massive acceleration in business growth due to digitisation, and the online space has definitely lowered the barrier to entry for entrepreneurialism.  Exciting times for businessowners, yet also cautionary rise of the aspirational celebrity entrepreneur lifestyle, without a strategy to support sustainable business growth for many entering.  You can hear me talk more about celebritised role models on The Challenger CEO podcast here.

Given the accelerated speed of digitisation in business and the rise of the Unicorn business, rapid business expansion is often seen as an indicator of success.  Yet, the very apparent early success for businesses can often lead to many businesses folding within the first five years.  This article offers an analysis of why rapid expansion can cause early business failure, specifically in the UK market in 2023.

Three of the top reasons why rapid expansion leads to early business failure

According to www.Gov.uk a significant proportion of businesses that fail within their first few years; and over half of the companies were aged under five years in 2021 to 2022; (source) whilst most small businesses exit within their first five years (source).  In these critical first years, there is so much learning in the data that informs strategic insights for not only surviving but the ability to thrive in various market conditions.  The ability to deal with change, and being agile to pivot from reactionary to setting the agenda is what can support the roadmap to scalable success.

Missteps in Scaling: A Slippery Slope

A common reason new businesses fail is the lack of careful research, strategy, and planning during expansion (source).  When a business expands too quickly without these considerations, the financial drain of the failing operations can cause the entire business to collapse.  One of the fears around success for my clients is when their business accelerates so fast that their five year plan has suddenly become a 12 month plan. That feels too scary for them as they did not anticipate the increase in demand or opportunities.  Their success in growth can be reactionary to the market, without the capacity to extract themselves from the delivery and analyse the longerterm strategic direction or red alerts around the risks of their short-term success.

Operational Inefficiency: The Hidden Cost of Rapid Growth

Rapid growth can lead to operational inefficiency. As ZenBusiness notes, unconstrained expansion costs your company time and money among other resources. Uncontrolled growth is accompanied by quality control issues, customer service lapses, and decreased employee satisfaction – all of which can lead to long-term problems.

Within the online world which has seen great success in the last 10 years, there is a lot of focus on the front end funnel and increase in customer numbers, retention, and recurring revenue.  However, this comes with increased customer requirements. Cue the importance of systems, processes, and human resources to manage multiple customers on demand.  Rapid acceleration instead of measured, strategic growth can result in a disconnect between manual and automated input and output.  In short, the machine has not been built to scale which can agitate the customer experience, resulting in increased operational energy investment in the wrong areas – and fighting fires which in short becomes expensive and can cause reputational damage and cancellations.

Overextension: Stretching Beyond Limits

Overextension is another significant risk associated with rapid growth. As businesses strive to meet increasing demands, they may take on more debt, overwork their teams, and push their operations beyond sustainable limits. This overextension can lead to burnout, reduced productivity, and increased financial risk (source).  Whilst there are infinite ways to increase revenue, human resources and time are capped by limited constraints.  Fatigued teams and limited systems have a capacity limit at which they become less effective and engaged.

How do you recognise you’re at a growth trajectory?

So when it feels successful and you’re ready to grow exponentially, how do you recognise you’re at a growth trajectory? Where do you strategically focus your longterm sustainable lens that ensures that you do not implode as a result?

Scaling a business is a significant decision and doing it at the right time can lead to substantial growth. Here are some indicators your business might be ready to scale:

  • Steady Revenue Streams: Consistent revenue over a period indicates that your business has a stable customer base and a product or service that’s in demand. Moving into a strong cashflow position provides the financial stability and resources to support the scaling transition.   This means that you have surplus pots that you are consistently building with at least 6 months cashflow in reserve.  More than that and you’re onto a winner.  This is critical for scaling because it ensures that you have enough money to invest in growth without jeopardising your operational expenses.
  • Proven Business Model: If your business model is proven and profitable, it might be time to consider scaling. By this, you’ve tested various aspects of your business and optimised the best ways to maximise profits. You know exactly where efforts are best focussed on to position and promote.
  • Strong Market Demand: Scaling should be considered when there is a strong market demand for your products or services. If your current operations cannot meet this demand, it may be time to expand. Favourable market conditions, such as economic stability and a growing market segment, are positive indicators for business expansion.  Whilst it is said that every market creates a market, the ability to be able to be agile so that you’re predominantly in a strong market position is a strong indicator to support your scaling efforts.
  • Operational Efficiency: Your business processes and operations should be efficient and streamlined. If you’ve automated routine tasks and your business is running smoothly, you may be ready to handle the challenges of scaling.  One of the biggest issues for SMEs is the reliance on individuals for operational and commercial success. By removing the labour intensive reliance on individuals means that the business can continue to operate without the personnel pushing the buttons 24/7.
  • Capable Team: A strong team is crucial for successful scaling. Your team should be able to handle increased responsibilities and workload. By building a culture that empowers the team and a natural chain of succession fosters a culture of creative innovation and accountability.
  • Scalable Infrastructure: Whether it’s production, service provision, or delivery to customers, your business infrastructure should be ready to handle growth.
  • Customer Retention: If your business is retaining customers effectively, it’s a good sign that you’re ready to scale. High customer retention rates indicate that you’re meeting or exceeding customer expectations.
  • You’re Turning Away Business: If you’re turning away new business because you don’t have the capacity to handle it, it’s a clear sign you need to scale.

Concluding Thoughts

While expansion is a natural part of any business’s growth trajectory, it’s essential to approach it strategically. Rapid, uncontrolled expansion can lead to operational inefficiencies, overextension, and ultimately, business failure.

By understanding these risks and implementing measured, strategic growth plans, businesses in the UK can significantly increase their chances of success in their formative years and beyond. Remember, slow and steady often wins the race in the world of business.

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