Problems with Growing Too Fast

Growth is exciting. But it’s common that during the excitement, decisions are made under the duress of order fulfillment, the allure of prospective customers and the demand of hiring more hands to keep pace with it all. Whatever the case, companies experiencing periods of dynamic organic growth, or growth through merger and acquisition for that matter, get stretched and typically fall into cash, costs, customer, controls or culture problems. Because they forget to pause and ensure the activities and decisions of today will take them past their current period of growth, they lose their bearings and miss the opportunity to reach a stronger fiscal position, greater bargaining power and a better competitive market position. In the most extreme cases, companies will go bankrupt, become completely irrelevant to the market, or worse, become a terrible company, the kind whose products or services are hard to avoid, but that customers hate to deal with.

Among the many problems fast-growing companies will face, there are roughly five typical situations they can suddenly find themselves in:

Situation #1: Running out of cash for working capital, PP&E and operating expenses.

Situation #2: Discovering that inadequate or insufficient business infrastructure is in place. Often this is manifested as not having the right level of business policies and processes in place for finance, IT and HR. Another tell is not having the right types of systems to support the size of the organization, like key processes still being carried out on Excel when they should be in an ERP. Another example would be not having the right security and safety protocols in place, both in the field and in IT.

Situation #3: Losing touch with customers.

Situation #4: Relaxing internal controls when chasing after new business. For example, expanding customer services by offering more favorable payment terms or faster fulfillment to “special” customers, which only erodes margin.

Situation #5: Losing your culture. The danger of losing your cultural identity is that without one there is nothing that will reinforce your strategy. At the end of the day your company is a collection of people that execute the strategies, and without a clear, positive and healthy culture to promote certain values you will get all kinds of unintended behaviors that will not fully exploit the growth boom, because when life is good and things come easy, people relax.

The best thing one can do is have a growth strategy in place. The points below can be used as a guide to see where your organization is in managing growth and where there may be some need of a pause to adjust your strategy. It’s best if this is done by gathering your managers together so that you all can arrive at a common understanding of the situation and can identify the levers that need to be pulled to ensure success.

  1. Is your self-financeable growth in check and are your measures moving in the right direction? Know your Operating Cash Cycle, the amount of cash needed to finance each dollar of sales, and the amount of cash generated by each dollar of sales.
  2. Have you evaluated your infrastructure and does it help you execute on a plan to support growth? Make sure it all rolls back up into the corporate strategy before you spend money on it.
  3. Do you understand what aspect of your service offering or product your customers find valuable and do you focus on delivering that, not just additional services or features? Re-evaluate your value proposition and ensure sure it resonates with your core customer. Cut out all the ancillary activities in your value chain that don’t deliver on the value proposition. Next ensure that you’re communicating the stated value in your pricing, down to your packaging, and revisit your channel strategy to make sure it aligns.
  4. Do you understand your operating costs and how they have evolved? Once you do a first pass to get a grasp on you current state, you should schedule periodic operational efficiency reviews to evaluate your performance to keep growth costs in check.
  5. Are you being disciplined in the way you track business performance against expectations, even if it is on an office white board? It’s okay to keep it simple. You don’t need many performance measures – you just need the ones that make sense for your business and your goals.
  6. Is your corporate culture and identity communicated through performance management, recruiting methods, hiring practices, rewards, incentives, compensation and other processes? It is important to exercise strict discipline in communicating the values of your culture in all aspects of your employee engagement programs. This will set a tempo for intended behaviors and set expectations for employees that will outlast all the ups and downs of growth.

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