[:en]Business Lesson #7 from the Book of Proverbs: Live within your means[:]

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by Stevenson Q. Yu

Proverbs 12:9
Better to be lowly and have a servant than play the great man and lack bread.

 

Pretending to be bigger than you are is a sure way to run into trouble in business, and a common reason why small businesses fail.1 Many business owners confuse initial success with opportunity instead of focusing on slow but steady growth.

You only need to look at one of China’s “ghost cities” in order to appreciate the danger of living beyond your means. Real estate developers invest a lot of money into new planned cities, hoping that manufacturers will come in, and bring in the workers and their families. Most of these investments were financed with loans, which left the developers in a very dangerous situation if the occupancy rate turns out to be low.

When the “if you build it, they will come” adage goes terribly wrong, you are left with nothing, except for the shells of empty buildings, most of them half-finished. The problem is so prevalent that China’s commerce minister warned that companies should not “expand blindly.”2

Overexpansion is a problem even for big firms, especially in the food industry. Subway, the biggest fast-food chain in the world, grew rapidly to over 27,000 stores at the end of 2015. But store sales declined due to oversaturation, and many franchise owners are now in open rebellion against the franchisor.3

In the Philiippines, Global Restaurant Concepts Inc., the local franchise holder of California Pizza Kitchen, International House of Pancakes, and Applebee’s, went from zero to 19 food outlets in 3 years. But in 2000, they were forced to close seven stores.

The 2000 global economic crisis undoubtedly played a major role in the decision. But the main culprit was inventory leakage. Because of their rapid expansion, the company failed to maintain its internal control system. Because of this, the company suffered losses from food wastage and theft.4

In May 2019, the restaurant group owned by celebrity chef Jamie Oliver closed, closing 25 restaurants and leaving over 1,000 without jobs.5 While some are blaming the Brexit decision and increased competition from other casual dining restaurants for the closure, cash problems from recent expansions were the root cause for the collapse.

Take Solomon’s wisdom to heart. Live within your means, and don’t try to be someone you’re not. You (and the bottom line of your business) will be much happier that way.

 

Endnotes

  1. Schaefer, Patricia. 2019. “Why Small Businesses Fail: Top 7 Reasons for Startup Failure.” Business Know-How (blog). April 22, 2019.
  2. Jabri, Parvez. 2014. “China’s Commerce Minister Warns against over-Expansion.” Business Recorder (blog). March 7, 2014
  3. Maze, Jonathan. 2018. “Why Subway Is Facing a Crisis.” Restaurant Business (blog). January 19, 2018.
  4. Carlos, Maricris. 2014. “How IHOP, Applebee’s Franchisee in PH Recovers from Overexpansion.” Entrepreneur Philippines, September 2014.
  5. Meyer, David. 2019. “What Killed Jamie Oliver’s Restaurant Chain?” Fortune. May 21, 2019.
(Links to Lesson 6 and Lesson 8)

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