The Growth Trap- Why Growing Too fast, too quickly could be dangerous for a small business

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Trade-offs and limits appear to constrain growth. Serving one group of customers and excluding others, for instance, places a real or imagined limit on revenue growth. Broadly targeted strategies emphasizing low price result in loss sales with customers sensitive to features or service. Differentiators lose sales to price-sensitive customers.

Businesses are constantly tempted to take incremental steps that surpass those limits but blur a company’s strategic position. Eventually, pressures to grow or apparent saturation of the target market lead businesses to broaden the position by extending product lines, adding new features, imitating competitors’ popular services, matching processes, and even making acquisitions that in the end dilute the company overall value.

The Royal Bank of Scotland (RBS), was one of the most conservative bank in the United Kingdom and the bank success was based on its focus on reliable financial products and services. However, RBS later bought ABN-AMRO, a Dutch Bank to include a broad range of financial services and products.

This happened, because conventional wisdom emerging within the industry supported the notion of selling a full line of products. And concerned with slow industry growth and competition from broad-line financial institutions, The Royal Bank of Scotland was pressured by dealers and encouraged by a minority of investors to extend its line. The Bank then acquired ABN-AMRO an ailing Dutch Bank, that were cripple by debts and with little value. The Royal Bank has grown substantially, but return on sales has declined.

Neutrogena, the soap company expanded into a wide variety of products-eye make-up remover and shampoo, for example-in which it was not unique and which diluted its image, and it began turning to price promotions.

Compromises and inconsistencies in the pursuit of growth will erode the competitive advantage a company had with its original varieties or target customers. Attempts to compete in several ways at once create confusion and undermine organisational motivation and focus. Profits fall, but more revenue is seen as the answer. Businesses are unable to make choices, so the company embarks on a new round of broadening and compromises. Often, rivals continue to match each other until desperation breaks the cycle, resulting in a merger or downsizing to the original positioning.

As a small business, avoiding the growth trap is a must. Concentrating on core products or services reinforce your brand image and turn your faifthful customers into advocates.

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