Two tricky truths in business:
1. Everyone is going to offer you a lot of encouragement around growth.
The idea of not growing will feel strange to them, and they’ll be working with the assumption that you want infinite growth until you become some sort of multimillionaire baron of your field.

2. Growth can kill a good thing.
If you grow too quickly, you’ll overload the business model or yourself and end up in a dangerous place.
These two truths leave us in a difficult spot: how to make decisions around growth that make our business stronger rather than weaker.
This is a puzzle that faces every founder and business owner, and if they ignore the puzzle then they risk running out of customers, cash or capacity.

The Money Machine And The Support Crew
Most businesses are made up of two major components:
Firstly, a money machine that generates revenue, turning ingredients, components and labour into valuable products and services, consistently generating a surplus/profit.
Secondly, a support crew that keep the money machine running, attract customers, handle queries, source ingredients and keep the day-to-day operations going.

The money machine in a café is the ability to turn $1 worth of beans and milk into a $5 latte, or $3 worth of breakfast ingredients into a $22 smashed avo.
The support crew is the barista, the chef, the wait staff and the cleaner.

The money machine in Foot Locker is the $270 Adidas Ultraboosts that cost a fraction of that to produce.
The support crew is the team in referee outfits who help you find the right shoes for your feet, patiently watching you squeak around in your new Ultraboosts as if you were pretending to be an athlete.

The money machine in an online course is the video content and workbook that sell for $599 through Instagram ads.
The support crew are the people who filmed and edited the course, and the social media team placing the ads and reply to comments.

Both of these are great.
You want a good money machine and you want a good support crew.
The challenge is in bringing them up to the same levels at the same time.
The role of the business owner is to pay close attention to how they’re each performing, so that they can make adjustments as early as possible.

Money Machine Utilisation
You want to have a sophisticated understanding of how your particular money machine works.
It’ll be different to a café or a shoe shop or an online course, that’s fine, so long as you understand the details and pitfalls of your equivalent money machine.
More specifically, you want to have a clear gauge of your money machine’s utilisation; how hard it is working.
Too high and it’ll burn out, too low and it sits idle, wasting the opportunity.

Support Crew Capacity
You want to have a sophisticated understanding of how your particular support crew works.
It’ll be different to other industries, that’s fine, so long as you understand the details and pitfalls of your equivalent support crew.
More specifically, you want to have a clear gauge of your support crew’s capacity; how much they can handle.
Too high and they become an expensive burden, too low and they’ll burn out.

A lot of us have experienced both extremes; when I worked at a bank I was bored and underutilised, when I joined a startup I was run off my feet.
Personally I preferred the latter, but it’s fair to say that we’re on the lookout for the Goldilocks “just right” balance.

Continuing with the café analogy, the owner wants to have a full house and maybe a short queue out the door.
Empty tables and bored staff are costly, and a long queue makes for frustrated customers.
You want the right amount of staff, and the right amount of patrons every day.
The café owner can implement a series of “optimisations” to boost their capacity, like a faster coffee making system or training staff to nudge customers out the door once they’ve eaten.
But eventually it becomes clear: we need a bigger café.
Now the owner is looking at the vacant store next door and dream about knocking down walls and adding an extra eight tables.
They dream of a bigger kitchen, a second coffee machine, or even…a second café.

Here’s where it gets interesting: a business that works at a small size might not work at a medium or large size.
Cafe entrepreneur Colin Harmon talks about this in What I Know About Running Coffee Shops: you make money running a six seat hole-in-the-wall café, or a big 55 seat café, but the middle is death.
That’s because your rent and staff costs increase dramatically, while your revenues increase moderately.
You’re busier than ever, and strangely making less profit than before.

We can map this visually, tracking revenue and cost on a simple graph.
Everyone thinks their business will work like the above diagram, with linear growth and a single breakeven point.
If only.
What we sometimes encounter is a “double breakeven point”, where the model works at some sizes but not others.
In the diagram below you’ll see the business lose money, break even and make a profit, then lose money again before breaking even a second time.

This might be overly simplistic, but it gives you an early clue about how businesses like yours will need to grow.
Can you grow linearly, or do you need to make a big jump in order to make a profit?
What does it look like to increase the size of your money machine?
How much does it cost to increase your support crew capacity?

Chicken And Egg
For your business, what is the right sequence for growth?
Do you add capacity then work to fill it, or do you take on more customers then work out what to increase?
Ideally you’d be able to increase them simultaneously, but in my experience that’s not always possible – it’s hard to add 15% of a manager just because you’ve had a 15% increase in clients.

If you start by adding capacity, you protect your team but you commit to spending more on payroll without the guarantee of more revenue.
That might make you or your board nervous.
It also takes out a bunch of your time to recruit and onboard your new team or systems, which will often have a few teething problems or “growing pains”.

If you start by adding customers, you protect your cash reserves but temporarily overburden your team and systems.
That might ruin your weekends and increase your staff turnover, which can be devastating.
It also means recruiting and implementing new systems amidst your busiest times serving all these new customers.

The Diderot Effect
One common trap is known as The Diderot Effect, named for the philosopher Denis Diderot.
Diderot, not a wealthy man suddenly came into a lot of money and a lovely scarlet robe.
All of a sudden, he saw a huge gap between his nice robe and his modest living conditions, and the difference became unbearable, describing “no more coordination, no more unity, no more beauty” between his possessions.
He upgraded his rug, kitchen, table, pretty much everything at great cost.
The Diderot Effect is the spiral of buying more and more things which require you to buy even more things.
It can overwhelm your business; upgrading everything all at once from entrepreneurial to professional will drain all of your spare cash or force you to take on more debt.
If everything goes well, the business can repay the expenses, but if you’re wrong you’ll have dug a big hole for yourself.
A startup doesn’t usually become a polished robust business with one investment, it usually happens gradually and as sales increase.
This takes serious patience, but it’s better than a cashflow crisis.

There is no magic answer here, but the earlier you start thinking about it, the better prepared you’ll be when these dilemmas arise.
Here’s what I recommend:

1. Talk to industry mentors and ask them how they approached this puzzle.
How did they manage to grow, and what would they do differently?
Are there tricks and tactics that let you take on more revenue without taking big risks?

2. Build a model of your money machine, one that explains how you make, spend and keep money.
It doesn’t have to be complicated, it just has to explain where the dollars go and what support is required.

3. Start modelling different shapes and sizes of business – your equivalent of the six seat, 25 seat and 55 seat café.
What sort of revenues can they pull in?
What sort of costs do they face?
Do they consistently make money?
Does running a business this size appeal to you?

4. Map out what your business would look like if you grow organically (gradually adding customers or capacity) as well as what it would look like if you grew through investment (suddenly able to buy a bigger money machine and hire a larger support crew).
What are the pros and cons?
How much money would you need?
What sort of return could you offer a bank or investor?

Growth is hard, but with clarity and early warnings you can avoid shocks and catastrophe.
These steps and models will help you understand your business and your options in more detail, and will help you make a clear case when talking to investors or your advisory board.

For more on this subject, I highly recommend What I Know About Running Coffee Shops by Colin Harmon, The E-Myth Revisited by Michael Gerber and High Growth Handbook by Elad Gil.