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Could your growth eat you alive?

 

Managing growth is always a difficult proposition for most businesses. Growth is often seen as an unalloyed good, with bigger always being better. More sales, more customers, more stores should equate to more dollars in your pockets at the end of the day.

But growth must be carefully executed, or the costs and expenses  can rapidly outstrip your ability to pay for that growth. Adding employees or square footage is costly and too rapid growth can lead to dangerous cash flow problems for most business.

 

Even wildly successful businesses can encounter the downside of growth. This week Cabela's reported that while revenue had increased for the recent quarter, it had experienced a 4.2 percent drop in comparable store sales from a year ago.

The analysts noted that the company appears to be cannibalizing sales from its existing stores in its newer stores. This is always a risk when you open new outlets and stores, and for Cabela's, it is a particular concern, given its creation of a destination shopping experience with each of its stores.

And is raises questions of for the company's overall growth target of more than tripling the number of physical stores nationwide, from 74 to 225.

As part of any due diligence during an expansion, you should examine the full costs of expansion, from commercial real estate acquisition, permitting, variances, hiring of staff, distribution and supply line issues.

This can ensure that there will be no unpleasant surprises that will conspire to cripple your expansion before it can become mature.

Perhaps the Cabela's sales issues are a onetime occurrence, but any company facing a similar situation should exercise a high degree of care in moving forward.

Source: Bloomberg.com, "Cabela's Massive Superstores Are Cannibalizing Each Other," Kyle Stock, October 22, 2015

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