In association with Hiscox
Growth is an exciting but also risky business. Helen Martin, Head of Brand at Hiscox advises a period of reflection before pressing ahead.
For any small to medium-sized business (SMB), growth opportunities can come around surprisingly fast. A client simply doubling an order can have a dramatic impact on the bottom line. But, it also has the potential to play havoc with a company’s reputation and reputational damage is the biggest perceived risk to start-ups and established businesses.*
Reputation matters. People buy from companies they trust, and avoid the ones they don’t. Take Unilever, for example. Its reputation contributed £65bn, or 57%, of its shareholder value in 2018. SMEs might operate on a much smaller scale, but when more than half of your worth comes from having a good name, it is worth protecting.
Growth creates uncertainty. There may be interruptions in supply which call an organisation’s reliability into question, or new and inexperienced staff may cause production problems or customer service issues.
But you can protect your reputation while you grow. One way is to make sure comprehensive indemnity cover is in place, reviewing the extent of coverage provided if the exposure to risk changes or grows with the size of the business. But you can also take steps to prevent problems before they arise. Here are four key areas to watch out for:
The people principle
Few businesses grow without having to upscale and upskill their human resource. Existing staff often find themselves promoted to new positions and new staff are brought on board to cope with demand. This introduces risk through inexperience: substandard or even unsafe products, poor management that causes delays or negative customer service interactions.
Staff training takes time but there is no substitute for a comprehensive induction process. To meet an unprecedented rise in demand, companies might consider outsourcing temporarily. This can be more expensive option in the short-term but it’s better than lost custom or lawsuits further down the line.
Interruptions in supply make companies seem unreliable. Existing partners might not be able to meet demand so you are forced to supplement or even move your custom to a bigger operation.
There is always a risk when a new relationship is untested – due diligence is key. Pursue case studies and contact current customers and get a dedicated contract lawyer on board to make sure agreements have contingencies in place.
A good history gives lenders confidence that a business can meet its new obligations. There is a greater degree of certainty that growth plans are realistic. Equally, a weak reputation makes it harder to secure finance, leading to lower levels of growth funding. That makes it necessary to pursue ‘cheaper’ growth options and corner-cutting which, inevitably, leaves the organisation exposed to more risk.
Leading from the top
Sometimes, the biggest risk as at the top. Growth is a real challenge for entrepreneurs. They are specialists, passionate about engineering or service. They’re not often also experts in human resources, finance, marketing, law and more.
As companies grow, even day-to-day management becomes more complex and missteps can have serious implications. Knowing how to source, guide and manage a growing workforce is a skill in itself. Disaffected staff can cause real problems. It is worth considering outside guidance in the form of third party providers or consultancies until there is both the finance and resource to bring roles in-house.
Growth is always risky, not just for reputations. But it’s also essential for a healthy company. Even with the most diligent preparations, there are often surprises. Recognising everything won’t go according to plan and preparing for that eventuality is a vital part of any growth strategy. Insurance is a partnership between carrier and policyholder. By anticipating the risks involved and putting protections in place, the path to growth will be an exciting but stable experience.
*Hiscox SME segmentation 2018 - Q17b. Which of the following are a risk for your company? – Big risk
The views expressed in blogs such as the above are those of the author and do not represent the views of the Institute of Directors.
Our preferred partner of Business Insurance, Hiscox, understand how important client reputations are and tailor their cover and claims procedures to ensure that relationships can be protected and preserved where possible. Hiscox are experts in small business insurance and understand the various risks your small business faces. This means should the unexpected happen, their comprehensive cover will help to keep your business reputation intact.
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