Growing a small business comes with both opportunities and challenges. The chance to become an industry leader is attractive, but it comes with the risk that demand will outstrip capacity. To avoid that pitfall, you need a strategic plan that’s backed by adequate financing, empowered employees, and the right information and communications technology.

How does a company go in just eight years from three guys working in a frigid apartment to one of the hottest developers of games for media giants such as Warner, Electronic Arts, Build-A-Bear Workshop and Nickelodeon?

Such a meteoric rise may sound like a dream come true, but for the unprepared, it can be the end of a business.

“We were able to successfully manage growth, and that’s where many small companies fail,” says Steve Couture, the entrepreneurial force behind the magic of Frima Studio. “It came down to having the right balance and a passion for three things: a creative artistic style, a solid technology base and good management.”

A 2010 survey by the Business Development Bank of Canada (BDC) found that 78% of entrepreneurs believe it’s important to grow their business and nearly half are targeting revenue increases of 10% or more.

But fast growth is a doubled-edged sword. The opportunity to expand and make more money will be lost if demand outstrips capacity, leading to disgruntled employees, strained client relationships, and shoddy products or services. That’s why it’s vital for small companies to step back from the daily grind and ensure their fundamentals are in order.

“Fast growth can kill your company if it’s not well managed,” says Patrice Bernard, Senior Vice-President, Financing and Consulting, at BDC. “You have to define your growth objectives, and then decide how much growth you can support and how much financing you need to support that growth.”

The first step, he advises, is a well-thought-out growth strategy that identifies the human resources, processes, tools and information systems you need to meet targets. Expect to introduce new information and communications technology to improve your sales, productivity and financial controls. You should also anticipate expanding facilities, adding machinery or hiring new talent.

One of Frima’s biggest challenges was attracting and retaining skilled people in an industry that is home to multinational competitors with much deeper pockets. Frima found its niche by creating a positive work environment for all of its 300 employees.

“We offer flexible work schedules, fresh fruit every day, massages, free bus passes and car sharing,” says Couture, a recent BDC Young Entrepreneur Award winner. “We also award points based on performance, which can be exchanged for services like grass cutting, changing your winter tires, tax preparation or even babysitting.”

Managing growth also depends on having the right information systems in place. Year after year, Canada’s Best Managed Companies (chosen through an annual program sponsored by Deloitte) cite investments in information and communications technologies as critical to driving growth.

“The lowest-risk growth strategy is one based on facts, not on hunches or conjecture,” says Peter Brown, Managing Partner for Private Company Services at Deloitte. “Often, the best fact sources are inside your company’s database. You may have to invest to improve these systems, but the payback is increased productivity and knowledge that will help your business succeed.”

Knowing when to make these investments is critical. For example, Frima contracted out its financing to save on costs until it needed a full-time chief financial officer.

“You will know it’s time to hire middle management or build a new plant once you’ve reached and exceeded your capacity to deliver,” says Bernard. “But don’t start ramping up until you firmly believe the cash will come in. Once you have contracts to deliver, you can probably find a lender to finance it up front for you.”

A successful growth strategy depends on a flexible management structure that allows your business to respond quickly to market demands. The last thing you want, says Couture, is for layers of bureaucracy to stifle your agility. Frima’s structure enables people to pare off into smaller groups that can focus on different market platforms, such as mobile or massively multiplayer online games.

From its humble beginnings, Frima has become one of Canada’s top independent video game developers, with products for Hollywood’s biggest brands, including Harry Potter and SpongeBob SquarePants, as well as games of its own. The company grew nearly 3,000% between 2005 and 2009, and expects to double growth over the next two years.

Couture says he’s grown as an entrepreneur as well. He learned the hard way that business owners can’t expect to do everything on their own. His advice? Make managing the business your number one passion.

“I started out passionate about the programming side of the business,” he says. “Now, I’m far more passionate about things like human resources, accounting and growth projections. I’m an avid entrepreneur and I love it.”