In today's fast-changing business landscape, success can sometimes come at a rapid pace, and for many Scaleups, this can be a double-edged sword. While rapid growth is exciting, it often exposes underlying weaknesses that if not addressed can lead to serious problems. One of the most significant risks to scaleups is overtrading, expanding too quickly without having the necessary structures, processes, or cash reserves in place to handle unexpected shocks.

These shocks can come from anywhere, economic downturns, supply chain disruptions, regulatory changes, or technological failures. As we live in a VUCA world (Volatile, Uncertain, Complex, and Ambiguous), businesses need to be prepared for the unpredictable. The term VUCA perfectly describes the environment in which businesses operate today.

It’s Volatile: Rapid and unpredictable changes. Think about the energy crisis triggered by geopolitical tensions and how oil and gas prices skyrocketed overnight, impacting everything from manufacturing costs to logistics.

It’s Uncertain: The future is harder to predict than ever. The COVID pandemic is a prime example, where industries were suddenly forced to pivot overnight due to lockdowns.

It’s Complex: Businesses today rely on intricate supply chains and ecosystems. One weak link can cause major disruption, like how the global semiconductor shortage halted production in multiple sectors.

It’s Ambiguous: Decisions are often made with incomplete information. Considering the rise of AI and automation, many business leaders know these technologies are vital for the future, but there is little clarity on how they will evolve and impact different industries.

It’s not only global shocks that present a risk to scaleups, risk can also come from issues much closer to home, such as uncontrolled growth and the effects of overtrading. Overtrading occurs when a business grows too quickly, taking on more orders or clients than it can handle without the underlying infrastructure to support that growth. It often results in cash flow issues, an overworked team, and a fragile supply chain. For example, a company might take on a large contract but lack the resources to deliver, causing delays, penalties, or damaging customer relationships.

Statistics reveal that 82% of small businesses fail due to cash flow problems. When a company overtrades, cash reserves can quickly deplete as expenses outstrip income, leaving the business vulnerable to even minor disruptions. If a key supplier experiences a delay, a key employee leaves unexpectedly, or a key customer cancels an order, the entire business can be thrown off course. It’s essential therefore that businesses ensure that they are not reliant on any one thing, be that a person (including the owner), a customer, a supplier or technology.

The source of risk doesn’t stop there, they come from all directions including the increased risk of cyberattacks, that are growing in sophistication, or the risk that extreme weather events pose.

Here are a few things that scaleups can think about or put in place to build resilience and make sure that they keep scaling.

Diversify Revenue Streams: Businesses with diversified revenue streams are more likely to survive economic downturns. One of the most effective ways to reduce vulnerability is to avoid relying on a single customer, market or supply chain. Spread your risk by considering expanding your client base or exploring new markets.

Strengthen Cash Reserves: As the saying goes, ‘cash is king’. Fast-growing businesses need to manage their cash flow carefully and set aside reserves that can cover at least six months of operating expenses. This buffer can help weather unexpected disruptions without derailing growth.

Limit Dependence on Key Personnel: If your business cannot function without certain individuals (including the owner), you’re exposing yourself to unnecessary risk. Develop succession plans, cross-train employees, and delegate responsibilities to ensure continuity if a key person leaves.

Supplier Management: I’ve known some good businesses go to the wall because of the sudden loss of a supplier. Don’t rely on a single supplier for critical materials or services. Establish relationships with backup suppliers and negotiate agreements that allow for flexibility in case of disruptions.

Technology Investment and Security: Make sure your digital infrastructure is robust and secure. Cybersecurity should be a priority, over 60% of (US) small businesses go out of business within six months after a cyberattack. Consider implementing secure systems and practices by meeting a cyber security standard such as Cyber Essentials.

Scenario Planning: Conduct regular scenario planning exercises to anticipate potential shocks and develop contingency plans. Identify your most significant vulnerabilities and create a strategy to mitigate these risks.

In a VUCA world, fast growth should always be paired with smart risk management. Overtrading and under-preparing leave businesses vulnerable to the shocks that are becoming increasingly common in today’s complex environment. By diversifying revenue streams, limiting reliance on key personnel and suppliers, building cash reserves, and investing in technology, scaleups can strengthen their resilience and ensure they remain on the path to long-term success.

In an ever-changing world, those who plan for the unexpected are the ones who thrive. At RTC we have over 100 scaleup, supply chain and innovation experts on hand to help you to avoid and withstand shocks and keep your business scaling.