Every industry is different, but for many small businesses, size can be a problem not a solution. Many a small business has suffered from growing too quickly. From a cash flow perspective, rapid growth can actually cause a small company to keep money so tied up in producing product that they can't meet their other bills. This article from Fortune Small Business examines how striving for growth and volume may sometimes cause lower profits for small businesses.
"I run my company with this saying: Volume is vanity, and profit is sanity," says Brad Skelton, 36, managing director of Skelton Tomkinson, a heavy-machinery shipper based in Brisbane, Australia, that counts Caterpillar among its largest customers and plans to open a U.S. office this year. Four years ago he raised his fees on nonmachinery accounts in order to deliberately drive away his least profitable customers, and sold off the remaining nonmachinery accounts. By niche marketing and focusing on higher-margin customers, he has increased net profits by 98% since 1999, while revenues—which had dropped dramatically, to $8.2 million—have slowly climbed back to $20 million.
I hate to see management develop an obsession with one number like market share, revenue, profit, or whatever. That's like trying to say you are healthy by only looking at your weight or blood pressure or one measurement of health. You have to see the total picture. Each number represents something, and you have to understand them all to be successful.