Navigating SME Growth Through the Law of Diminishing Returns
The law of diminishing returns is well known. It’s a principle that suggests that as your business grows beyond a certain point, the benefits you gain become smaller and smaller.
In fact, expanding your business beyond a certain size can have the opposite effect on your profit margins and overall sustainability.
Why, you ask? Well, the larger your operation becomes, the more significant your overheads tend to be. And eventually, the costs of growth can outweigh the benefits.
I’ve witnessed numerous businesses suffer a loss in value due to overexpansion. Systems start to break down, waste accumulates, profitability dwindles, and they lose control over the quality of their offerings.Customers can also become lost in the process, leading to dissatisfaction.
Certainly, growth is essential for any SME. However, if you’re contemplating an exit strategy in the next few years, it’s wise to focus on putting your house in order.
Refine your systems, enhance your profit margins, perfect your operations, and scale in a way that’s just right for your unique circumstances.
The most valuable SMEs are those that strike the right balance — they’re large enough to be profitable and valuable, yet small enough to remain agile and efficient.
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