PODCAST: The Growth Trap: How Success Can Kill Your Business

This podcast was originally published by News24 in partnership with Lula.

Every entrepreneur dreams of rapid growth, but what happens when success becomes your biggest threat?

In a revealing conversation on the Lula Growth Series, Thomas McKinnon, Chief Growth Officer at Lula at the time of recording, tackled a paradox that’s catching South African SMEs off guard: the growth trap.

“Growth can kill cash flow,” McKinnon warns, explaining how businesses can simultaneously experience booming sales and financial crisis. “Don’t chase growth for its own sake. That’s just vanity. Revenue is wonderful, but zero in on profit.”

When success becomes dangerous

McKinnon distinguishes between growing and scaling – two fundamentally different approaches to business expansion. While growth often means proportionally increasing costs alongside revenue, scaling focuses on sustainable profitability.

“In South Africa, profit isn’t just a growth limiter, it’s the key to survival,” he emphasises.

The warning signs are clear but often ignored: shrinking profit margins despite higher sales, constant cash flow shortages, increasing reliance on overdrafts or credit cards, and operational chaos leading to customer complaints.

The double whammy effect

South African SMEs face a particularly challenging environment. As businesses grow, cash flows out faster to handle increased inventory and staffing, while delayed client payments often extend standard payment terms, creating working capital crises.

“It’s a double whammy,” McKinnon explains. “You’re spending more to fulfil larger orders, but getting paid later for that work.”

This leads to what he calls ‘“the worst kind of busy’”: high revenue with empty bank accounts, forcing business owners to make desperate decisions that ultimately damage their brand and customer relationships.

The 90-day solution

McKinnon’s prescription is refreshingly practical: create a 90-day rolling cash flow forecast. “Cash is king,” he states simply. “Track your current cash, future receivables, and upcoming liabilities weekly or monthly.”

This isn’t about complex financial modelling. It’s about understanding when money comes in versus when it goes out, enabling SME owners to make informed decisions rather than reactive ones.

Stabilise before you scale

Perhaps McKinnon’s most counterintuitive advice: sometimes the best growth strategy is to pause and stabilise. “Stabilising doesn’t mean stopping; it’s about pausing non-essential activities to regain control.”

His recommendations include being ruthless about financial discipline – identifying money-losing customers, negotiating better supplier terms, and limiting overly generous credit arrangements.

“Focus on profitability first,” he advises. “Ensure your unit economics make sense before aggressively pursuing growth.”

The path forward

For SMEs already caught in the growth trap, McKinnon advocates for immediate action: streamline costs, systemise operations, and improve working capital management by collecting receivables more aggressively.

“Protect your brand and customer experience,” he warns. “Avoid rushing growth that compromises service quality.”

The bigger picture

McKinnon’s insights reflect Lula’s deeper understanding of the SME landscape. Having worked with thousands of South African businesses, the patterns are clear: sustainable success comes from disciplined growth, not vanity metrics.

His final advice resonates beyond finance: “Don’t grow just for growth’s sake. Build something that lasts.”

For entrepreneurs navigating an increasingly complex business environment, McKinnon’s message is both sobering and empowering: success is possible, but only when growth serves profitability, not the other way around.