BSG Tips – How Much Capacity Should My Company Have?

This is a common question in the first year as companies strive to be the first in the industry and win the business strategy game. A very simple concept to imagine is that by being the biggest company you will be successful, and therefore people expand by enormous amounts and putting their company into significant debt in the first year.

The concept of a lot of capacity wins has truth to it, as usually the company with the biggest capacity does win. But this does not mean that they are any smarter for it. Being the biggest company and losing to a smaller one is embarrassing and it happens if the company isn’t skillfully managed.

A company that is overaggressive and over-expands to the limit will definitely put itself in financial straits immediately. Krispy Kreme doughnuts is such a company that overexpanded beyond their management skills and they paid dearly for it. There is a market for doughnuts for sure, and Tim Hortons skillfully expanded in a way that Krispy Kreme did not.

Especially in an industry where everyone over-expands and the market crashes with oversupply, it is the few companies who did not expand and wisely choose to advance their company the second year. Therefore it is best to hedge your bet between the long term goal of being the big company and putting yourself in a bad spot in the second year to limit your plant capacity in the first year if you really want to win the business strategy game.

View capacity as a weapon, and the bigger it is, the harder you can hit the other companies. But if you can’t lift it or skillfully wield such a great weapon, someone else who is more astute with smaller capacity can humble your company quickly.

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