28 May ‘21
E-Commerce Growth: Can You Scale too Fast?
28 May ‘21
In: Business, / By: Ripe Admin
You might not believe it but e-commerce growth isn’t always a good thing. Scaling a business for what it can handle is important, and rapid growth can throw off that balance.
That all said, you don’t need to fear growth. Instead, we hope to explain the dangers to watch out for and some signs indicating that you may want to slow down.
Pushing Your Limits Can Be Expensive
There is a concept in business called the production possibility frontier (PPF). This is essentially a chart dictating how a company’s resources can be allocated to produce different kinds of goods.
It’s relatively easy for a company to move its production anywhere beneath or at the PPF. The chart represents their current capabilities. However, to produce more than the PPF allows for, they must grow.
Growing beyond one’s limits, rather than becoming more efficient or reallocating resources, is expensive. While that growth can be beneficial, it isn’t always.
Online stores need to be careful in how they expand. Increasing your shipping radius or offering new products can be a bigger undertaking than many imagine.
If a business promises too much, expenses can balloon. You’ll need to expand your business, rather than get better at using what you already have.
That said, over time, things will balance out. You will learn to efficiently use newly acquired resources and figure out how to best train employees for new tasks. Even then, though, overhead has increased and profits had better as well.
Fast Growth Can Worry Investors
One of the risks of growing too fast is that it can put off investors. There are a few reasons for this.
The biggest reason is the history of companies that go through rapid growth. For the reasons mentioned in the previous section and more, many businesses undergo rapid growth right before failing.
Investors want to see healthy business growth, not strange, spiking growth. In their eyes, this may signal the decision-makers at a company aren’t fully aware of how much growth can increase overhead and reduce efficiency.
Rapid growth also isn’t sustainable, even if your operation can handle it. It may not say much about your potential for future growth, which is what most investors care about.
Most investors are going to look for a steady pace of growth that it would be reasonable for your business to keep up. Rapid growth proves you can spend money; steady growth proves you can make it.
A Bigger Business Is a More Complex Business
As an e-commerce business grows, many things need to be balanced to have the business model continue to make sense.
Here are a few ways your business might grow in complexity:
- More goods will need manufacturing
- More goods will need to be stored
- Employees will need to be hired (and trained)
- A cost-effective shipping solution will need to be found
- A website will need to handle more traffic
- Marketing aims and spending will need adjusting
That list isn’t comprehensive either. Almost every element of a business can get more complex as it grows.
In the early days, the chances are good that you’ll be equipped to handle a business growing more complex. However, this can change as your business continues to expand.
Every business owner will have a point where their operation is more complex than they can handle. There are solutions to this (e.g, hiring more management and giving employees more autonomy), but they have their downsides.
Don’t Break Things (or People) as You Grow
The trick to e-commerce growth is not to damage what you already have as you grow. Growing can push your logistical supply line and your employees to a breaking point.
This can really damage your bottom line, in addition to causing undue stress to those working for or with you. Your supply line may get stopped up by too many orders. Employees may slow down or downright quit.
This can lead to a “death spiral” of sorts if you’re also continuing to grow as these things happen. Fewer employees and a weaker supply line is a disaster if more and more orders keep coming in.
If things are getting bad, you must reassess so as to keep your talent and make sure orders can be filled on time. Both those things are far more important than artificial, poorly-implemented growth.
Consider Using Professional Help
All of the above isn’t to say rapid growth doesn’t have a place in a wider business strategy. Instead, it is to acknowledge there are downsides to expansion that can’t be ignored.
One way to help reduce those downsides is to enlist the services of companies that can help.
As an example, our company, Ripe, can help with branding, website design, and more. Services like this can help you formulate a new strategy for your growing company with expert help, rather than on your own.
The reason it can be a good idea to contract professional help is that the first few months of rapid growth are often the hardest. A company will face many challenges that are difficult but won’t be ongoing once solved.
Want to See Some E-Commerce Growth? Contact Us
E-commerce growth can be great if done well. After all, every business owner hopes to expand and more money someday. The important part is not to take on more growth than your company can handle.
If you’d like to discuss how our company might help you grow, contact us! We’ve helped a number of big companies like Ford and Disney market themselves, and we can help market you too.