A growing business is a great thing, and it is what we all strive for. Rapid growth can also be a pandora’s box of problems. Daniel Lubetzky, founder and CEO of KIND Snacks, knows the pains of entrepreneurial ups and downs. In a FastCompany interview, Lubetzky said, “Fast growth can hide a lot of weaknesses and deficiencies. If you’re attuned to your business and actively identifying mistakes as you grow, you’ll be better equipped to build a sustainable enterprise.”
The reality is that only one-third of Inc. Magazine’s 5,000 fastest-growing companies were still in business after five years. The Kauffman Foundation and Inc. Magazine, who conducted the 2015 study, found that the majority of these companies had either downsized or gone out of business entirely.
There is a reason that most companies never make it to the third stage of enterprise maturity, where they are entirely self-sustaining. Increased growth can be an illusion of success that simultaneously amplifies errors in the weakest part of your organization.
In my 20 plus year career, I have excelled in team and business growth. Now, as COO of CUE Marketplace, I help businesses grow from initial idea to a full-fledged company. I have seen many companies grow too fast because they fail to scale in a controlled and methodical way.
Let’s look at some ways to stay tuned to your business, so when you do begin to grow, you have the tools to solve any problem that might arise.
Operational inefficiency can cost you time and money during uncontrolled expansion
There are many permutations of how operational problems could affect the growth of your company. For example, KIND was plagued by challenges when the company tried to expand. Daniel Lubetzky initially put too much emphasis on accepting large orders, which were difficult to fill because KIND was set up to produce their bars in small, hand-cut batches. While the company did eventually create a manufacturing process that could keep up with their demand (and Lubetzky’s goals), it took extensive trial and error.
In the same FastCompany interview Lubetzky said:
“I wish I had better understood patience as a virtue. In the early days, I, like many entrepreneurs, was hungry for growth and determined to do anything to make KIND succeed.”
Photo Caption: Daniel Lubetzky, Founder and CEO, from the KIND website
Fortunately for the company, Lubetzky did learn to slow down and scale the manufacturing process at a speed which adhered to the company’s core value of quality, while simultaneously keeping up with demand.
I personally interact with many small business owners with KIND-like dreams of success. I spoke with one entrepreneur who, as a side project for his business, spun up a Kickstarter campaign for a card game. The marketing team created a funny video to promote the Kickstarter campaign, and it blew up. So much success exposed the fact that in all of the excitement of marketing, the team had completely forgotten about their supply chain. Printing and shipping the games before the holidays was more complicated and time-consuming than they anticipated. In the end, the company had to send apology emails to each customer whose game arrived late. Many customers canceled orders, which were in the process of being filled, costing the company even more money.
The lesson in both of these stories and the biggest takeaway for entrepreneurs is twofold: don’t be frustrated by slower-than-desired growth levels. Instead, plan ahead, and understand how to grow each department.
One way to troubleshoot future problems is to speak with owners of other fast-growing businesses in your sector to see what challenges they encountered. Connect with fellow entrepreneurs through your local Small Business Development Center (SBDC) or local SCORE chapter for advice. The services are free, and they might help you connect with a business owner in your area or make you aware of solutions for your type of business.
Increased demand for your product or service can cause a cash flow crunch
Cash flow problems are another indication that your business is snowballing. These challenges can present themselves in many ways. The finances of running a new business can be difficult to manage, especially if you are initially surviving on credit as you try to grow revenue. Increasing sales may initially come a high cost, especially if you have a pay cycle of 30 or 60 days and are waiting for an influx of cash from invoices. Later, if business is booming, it may become more complicated to track down unpaid invoices.
There are a variety of solutions to these challenges, not least of which is hiring an accountant to help you keep tabs on billing. The best way to solve a cash flow problem is to anticipate your startup’s future needs. Keep some funds in your account in case your invoice payments are dated out a few weeks. Plan well ahead for more substantial outlays such as a loan for equipment, and begin the process of getting pre-approved for a line of credit before you need it. Another option is to diversify your client base, and if one big client falls through or you are waiting on their payment, you won’t be as vulnerable.
Another cash flow problem that is indicative of growth is mismanagement or complacency around outgoing costs. Once the money starts rolling in, and you are not counting pennies to pay the bills, it is easy to get distracted by other business priorities and forget to keep a tight rein on the outgoing expenses.
I spoke with a potential customer who confessed sheepishly that he didn’t know how much he was spending on software. As his company grew, he purchased different types of software to solve a problem: HR software for new employees, and inventory management software he wanted to test. Once the problem was solved, he would forget to cancel the subscription. It was not top-of-mind because he was so busy running his business.
If you suspect that overspending is a challenge for your business, begin by checking your bank accounts. It may sound simple, but there could be small charges slipping under the radar. Also, conduct a review of departmental spend. Are there purchases you are making that are no longer necessary?
Negative customer feedback is indicative of a larger problem
Another good way to tell if your growth is out of control is to listen to your customers. Increased customer complaints can be a key indicator that something is wrong with the way you are running your business.
How can you find out if customers are complaining? Glance at your Twitter feed, or ask your Customer Success Managers what kind of feedback they have been getting. Maybe the quality of your product is declining, or the customer support team isn’t very friendly.
The failed company Jawbone is an excellent example of how obvious customer service problems can indicate a more substantial, company wide-issue. Even though Jawbone was incredibly well funded, it was also experiencing internal issues. In January 2017, The Verge published an article about the company’s lack of customer support. The customer helpline was dead, and complaints on Facebook and Twitter went unanswered. By July of that year, the company was in the process of liquidating.
Photo Caption: Image of a Jawbone watch from The Verge article
While we can’t know exactly what was taking place internally, and while Jawbone is admittedly an extreme example, there are still a few things we entrepreneurs can learn from this particular case study.
Customer complaints are an opportunity to improve your business, as the customer is shining a light on the exact part of your process that needs improving. Their critical feedback is something you might not get from employees, or see yourself since you are too close to the problem. Typically, customer complaints can result from poor customer service or the fact that scaling up production can lead to reduced product quality.
Whatever the reason, let’s look at how your customers can help you out. Like everything, it involves taking a step back and then revising your process.
- Notice and document: Train your employees to see customer complaints as a growth opportunity. Set up a process to document and categorize the feedback, and also record and highlight the positive comments.
- Review: Look for patterns about where the greatest issues lie. Maybe it is with the product, with the instruction manuals, perhaps there is a disconnect between the sales team and the actual experience.
- Revise and share: Once you have noticed one or more areas that could potentially be causing dissatisfaction, set up a plan, as we discussed above, to solve it. But don’t stop there, this is an excellent marketing opportunity to share with your customers how you listened to them and the steps you’ve taken to listen to their requests.
As business grows, you struggle to keep up
Founders are at the heart of their organization, which can also be the problem. As a company grows from the startup stage into a larger organization, the company culture is bound to experience growing pains, as well.
Sometimes the problem can be at the very top. Entrepreneurs work all the time: late nights, early morning, even on vacation. Some of this stress is a natural part of running your own business, but it shouldn’t be ongoing. If your long work period has no end in sight, it is a good indication that something is wrong elsewhere in the business. Particularly during rapid growth, it is easy to lose track of all the tasks you are responsible for.
Fortunately, we live in an age where this is a well-documented and well-explored challenge for entrepreneurs. There are many resources to get organized, manage anxiety, prioritize tasks and explore ways that you can relinquish control to skilled employees.
Outsourcing tasks to existing employees or new hires is a great way to move work off your plate. Eric Ries, author of “The Lean Startup,” had some very simple advice in his interview with Foundr:
“Try and find the places where you have an area of responsibility that you can hand over to somebody else. Because the fact that you’re already struggling to do it means you know what the job requires and why it’s hard, so you’re more likely to hire somebody good and you’re more likely to be able to hold them accountable.”
This handover could be anything from non-critical administrative duties or hiring an experienced contractor to cover specific roles. Being the head of a business doesn’t mean you have to be an expert in everything, but instead it is an opportunity to surround yourself with specialists who can help guide you through the next stages of becoming a bigger business.
Growth itself is exciting. You’ve met a customer demand, or come up with a successful solution. But given the failure rates of startups and small businesses that focus all of their efforts on rapid growth, it is important to have a scalable plan in place. Wherever you are in your current business, it is time to take a step back and take stock. Ask yourself, or the heads of each department, what resources would they need first if the company got a huge order? What parts of the company would be the first to experience stress and how could this be alleviated? Consider all your resources and be prepared to re-plan once your business starts to grow again. That way you can grow slowly and steadily in the direction of self-sustained growth.
If rapid growth is something your company has experienced, let us know in the comments below how you overcame any problems that arose. If you are looking to
This article was originally published in Startup Nation