It’s the entrepreneur’s dream—come up with an idea, develop a business plan, start building out a product or service, then take it to market and experience rapid year-over-year growth.
But in almost every case, fast growth comes with strategic business challenges. Some of them are so daunting they can push a company off the rails and into market irrelevancy or even bankruptcy. It’s a scenario I’ve seen play out many times during my 40-year accounting career. Some entrepreneurs become so obsessed with growth that they forget how to effectively manage it.
Why? The allure of improving the bottom line, adding clients and building an ever-larger organization can be addictive. Growth is the goal of virtually every business owner, after all. But what many entrepreneurs fail to take into account is the need to build systems and have the right people in place to help clear the many hurdles that emerge as a company expands from a few people to dozens, to hundreds or even thousands. And if that expansion process plays out too quickly, it can spell operational doom for even the savviest entrepreneurs.
Here are five of the most common growth-related challenges I’ve helped clients overcome, with tactics to manage each one:
Knowing who to hire and when—Attracting and retaining the right talent is a challenge for any start-up business, but so, too, is timing out often expensive executive-level hires. Many companies opt to recruit a full-time CFO in their early years, for example, but in only a handful of cases is that the right move.
A better approach is often to hire a part-time CFO to help set the company’s financial direction and stay abreast of key operational metrics. Doing so helps minimize salary expenditures and maintain the HR flexibility that’s so precious for every young organization. Ask yourself: do we really need to hire this executive or manager? Or, can we wait, perhaps until we find someone else to achieve the same business objective in a more cost-effective or strategic way?
Cash flow management—More businesses have been broken by poor cash-flow management than the work of their innovation-obsessed competitors. Understanding burn rates (the operating cash your company needs to stay afloat each month), staying on top of accounts receivables and even managing relatively simple processes such as invoicing (hint: automated systems can be very useful tools to help lessen your billing burden) can mean the difference between success or failure.
That said, virtually every new business experiences natural cash flow lags from time to time. Be proactive and secure more seed funding than you think necessary, or have access to additional funds through avenues such as a line of credit, to help you make payroll or pay for inventory without taking your balance sheet into the red.
Accounting and HR control—Businesses that grow quickly inevitably find that it’s just as difficult to manage a greater number of people as it is to serve a greater number of clients. Rapid growth creates the need for constant recruitment, but can also threaten an organization’s culture and create situations where product and service quality becomes compromised, especially if training systems aren’t optimized. Implementing comprehensive HR and operational policies and procedures will not only help your organization stay on the right side of local labour and employment laws, but will help avoid many of the costly issues that arise when the fallout from distracting workplace challenges (think heightened levels of employee turnover) threaten your company’s growth.
Then there’s the issue of tax and accounting controls. One of the opportunities of rapid growth is the ability to leverage an influx of cash into the business to make investments in people or capital items such as machinery. Trouble is that many companies don’t have internal controllers or effective systems to monitor which departments are spending on what items.
This often results in inefficient production, dead inventory sitting on shelves or expenditures on extraneous line items (did you really need that high-end designer board room table or to have your people fly business class on a short-haul flight?). Whether your controller is an employee or you outsource those duties to a third-party accounting firm or part-time CFO, make sure that someone is watching the books at all times—and ensure they have the necessary software tools to track cash flow and expenditures in real time to avoid unexpected financial surprises.
Management and information systems—In an era when advanced business metrics reign supreme—think everything from production statistics to digital data about customers’ online purchasing behaviour—it’s crucial for organizations to take the time to implement electronic systems to measure performance and analyze important operational variables.
I always recommend that clients start by taking a critical look at their current systems, what information they’re already gathering and what other data could help transform their business. This could be as simple as introducing a software-as-a-service, cloud-based customer-relationship management system to help with sales and marketing. Perhaps it means implementing lean operating principles and corresponding controls to help manage inventory or delivery times.
Whatever the case, these systems must be easy to use and understand, and the data should be presented to management clearly. Data architects and designers can help with this task, often using tools such as infographics or simplified dashboards to allow your leaders to make critical decisions in real time.
Knowing when to cap growth—Lastly, there is no rule stating that your business should grow by any set percentage in any given year.
Growth is important, but it can be limited, say, by capping the number of clients you accept in a year or by setting clear financial benchmarks to achieve before hiring new staff. The best leaders know when to say ‘no thanks’ to further growth opportunities. The very best find ways to manage their organizations in a way that allows for consistent, intelligent growth without negatively impacting the quality of their organization’s products or services, its employee engagement or its financial well-being.
Managing growth in a smart way isn’t easy, but when it works, the rewards are lucrative. Even addictive.
Marshall Egelnick, Managing Partner