(7h) Example of how companies can grow too fast

Imagine a couple have a restaurant this is busy and thus they decide to employ a waiter. The waiter works hard and makes suggestions to improve the interior and service and the owners agree. The changes result in an increase in turnover and as he is an ambitious person with a strong character and suggests more changes  that the owners reluctantly accept as they are not sure about them but the business flourishes even more and becomes the best restaurant in the town.


As he is good, the owners decide to give him more responsibility. After a short time he tells them a second waiter is needed and they agree and make him head of staff. Although this results in an increase in expenditure, they accept this as it allows the owners to have a free day. After a short while and as the restaurant is busy, the main waiter request to hire a second person with knowledge of wines so the restaurant can attract more people who like wine and so increase prices as they are too low for their standards. The owners hesitate but agree although request the second person will also serve. This results in a drop in income but this is compensated with higher prices although some loyal customers decide the price is too high.


Then the main waiter convinces the owners to start another restaurant and the owners take out a small loan while the main waiter moves into the new business with another waiter while he is replaced in the original restaurant with another waiter. The owners trust their main waiter and give him some freedom to improve the new restaurant; for this he can spend some money as he does. Sometimes he has to request the owners to use a larger sum to buy something more expensive; as the restaurants attracts more people, they agree most of the time. Although this waiters salary increased, he now decides it is time for a larger increase of his salary and a part in the business. The owners agree with the increase in salary but not in ownership but accept he is now in control of managing the business while the owners relax more.


Thus, he takes over the management, and decide it is time to invest to become a top restaurant. For this, he employs some extra waiters and raises the prices but, as this restaurant is located in the capital, more people come and the business is booming. He then discusses with the owners to open another restaurant in another city and they agree. However, this is not a real hit and doesn't make as much money as was budgeted. Therefore and as he was always successful, he convince the owners to take a loan to improve the restaurant and yes, more customers come although still not as many as originally expected while the price of the dishes need to be lowered. Because the restaurant is now more profitable, he convince the owners he is worth a further pay rise and bonus.


In the meanwhile he also convinced the owners to "diverse" and to rent land so the restaurant can serve its own "ecological" vegetables. The owners agree and will even garden. The vegetables are not really what you would serve in a good restaurant and thus vegetables is still bought while they stop renting the land early so they need to pay a fine as they break the contract.


Then the waiter informs the owners he is leaving for another restaurant that pays much more and he will not stay as it is a ones in a lifetime chance. Thus, the owners return to the daily business and find the now small company has large debts. Therefore, they need to employ an expensive crisis manager who sells the most profitable restaurants while the owners have to move to another city and continue to work as they can't afford waiters because they still need to repay some debts. They hear their main waiter is now leading a top restaurant.


Thus, the owners are in troubles although they initially didn't want to end up with a small restaurant chain because someone else grew his career by using someone else's money to create his own name while left before it collapsed.

 

Fake? Many companies fail because an ambitious CEO and supporters, i.e. other managers he brings into the company or major shareholders, convince the company they are too small and in order to continue they need to grow and fast. Therefore, they use the company's money or borrow to buy other companies. This may go well unless there is a crisis (for instance, a company that bought products is no longer happy with the quality and stops buying or as is the case today the Covid-19) after which the whole structure collapses.

 

There is nothing wrong with the desire to grow and become big but this should happen in an orderly way without growth being the only driving force. Therefore, not only the management (often a small group of employees who consider the company is theirs although it is not) and shareholders (that can include the management when they grant themselves shares in the company) but also employees should be consulted as each one has their own viewpoint.

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