What's the Hurry?   

By Sheryl Nance-Nash

Speed can kill. Whether you're talking about cruising the highway or navigating business, going too fast can prove fatal.

While there are different definitions of fast growth, we can pretty well assume that a firm with revenues increasing 15 to 20 percent or more a year, consistently, is a rapid-growth company. And, as with all things approached at high speed, even a small bump in the road can send you flying headfirst into a brick wall. And few of us would recover from that.

The secret of safe—and speedy—growth is threefold: You have to recognize where mistakes are most likely to happen, acknowledge the signs that warn of impending danger, and understand the factors that help guarantee healthy, strategic development.

First, the mistakes…

What Not to Do

Lose touch. You can get so caught up in all the excitement and frenzy that you lose connections with the most important people—your customers. Furthermore, you start missing deadlines and essentially break promises not only to customers, but to vendors and employees, as well.

Think bigger is better. "You think you can grow unprofitably today and turn volume into profit tomorrow. You focus on reaching critical mass, but discover that the day of profitability never comes," warns Steve Waterhouse, a consultant with the Waterhouse Group in New Portland, Maine.

Lose focus. You venture into too many new directions at the expense of your core business. Few companies can be all things to all people. Confused, neglected customers may decide to go elsewhere. "Remember why you're doing what you're doing, Waterhouse advises. "Don't just grab for additional dollars. Growth should come from innovation."

Skimp on your homework. Many an entrepreneur has inaccurately defined the size of a market. They think, “Build it and they will come." That might work in the movies, but not necessarily in the real world.

Take your eyes off the financials. You're so busy chasing the next hot product or service that you're not managing current processes. "Sales are going up, revenues are coming in, but you're out of cash. Receivables are lagging. You're not getting the financial reports necessary to run the business, or you don't really understand what they say about your business," explains Gerry Murak, a business principal with Murak Associates in Williamsville, New York. You'll miss the finer details, like the fact that your sales team is doing a lot of deep discounting—a sale of $10,000 is reported, but a $2,000 discount was given, so it wasn't profitable. Or maybe the sales team is selling like crazy, but not the most profitable items, or not to the best clients.

Not anticipate future capital requirements. What will it cost to hire the top talent needed to fuel continued growth? How much will a recruiter cost? What will you need to support those people in terms of training, equipment and benefits? What will it cost to ship all those additional orders? What technology enhancements will you need to grow? Will you be able to afford the inventory to produce all the widgets, and to do so in a timely fashion? Essentially, do you have enough capital to meet your growth needs?

Continue to push the envelope. You may set targets without considering the consequences, and drive the company to meet unrealistic financial goals. This proves detrimental to not only employee morale, but also customer satisfaction. “You want your employees to know where the company is heading and how their jobs will help to accomplish overall management goals, otherwise you’ll end up crashing and burning,” says Milton Galeas, manager for financial reporting and an accountant with Morgan Stanley in New York City.

Become reactive. "You're so overwhelmed with growing that you aren't being strategic,” warns Jeff Sloan, co-host of the nationally syndicated StartupNation radio program. "You should spend at least one of the seven days in a week considering overarching strategies, being in a strategic stratosphere."

Red Flag Warnings

It’s one thing to know what not to do, but quite another to recognize when things are beginning to reach critical mass. Learning to survive means learning to read the signs.

You’re short on cash. "At the first sign of shortages, whether it's meeting vendor payments or payroll, or you find yourself sitting on checks, take note," says Murak.

Customers are complaining. You're late, or not meeting your reputation’s standards. "Have a mechanism in place for customers to give feedback. Most customers may not bother to complain; they simply move on," says Waterhouse.

You’re hiring injudiciously. Panic hiring sets in when you’re anxious to get bodies in seats to do the work; but don’t make the mistake of taking hiring shortcuts, forgoing background checks or settling for less qualified employees. Also, don’t make matters worse by over-promising big bonuses or other perks to lure the best and brightest. In addition to hiring quickly, time-pressed entrepreneurs can be slow to fire, letting problem people linger, dampening morale and possibly hindering relationships with customers.

The work environment is too pressured. Stress is hard to hide from clients. Service levels may suffer, as employees’ tempers shorten and nerves become frayed. Productivity levels may suffer, as an increasing number of workers take more and more sick days—or even start jumping ship.

You aren't adapting to change. "When our company grew from $2-3 million to $8-10 million, we had to build a structure of authority for managers to deal with key employees. Not everyone could report directly to the president. Our company was too flat in management," says Tim Berry, founder/president of Palo Alto Software, which sells business-planning software. His firm also didn't anticipate additional capital needs. "Our growth doubled twice in the 90s. We had to put a lien on our house to support the increase in our credit line," he recalls. Though everything worked out, it was a risk that could have been avoided with proper planning. "I have an MBA from Stanford, and I still didn't pay attention to the sorts of things that I consult with business owners about all the time," says Berry.

Growing Right

If you’re prepared for it, fast growth can be the best thing to happen to your company—but you need a carefully planned route by which to map your course.

Put your plan on paper. Having a financial and business plan is essential. Review your business plan quarterly, assess how you're performing relative to that plan, and decide where changes need to be made. You can't know you're on track if you're not watching the numbers.

Don't go it alone. Build a dream team of advisors—lawyers, management consultants, marketing gurus and others, to provide objectivity and guidance. While you may think you're too small a company to hire a CFO, that’s not necessarily true, says Bruce Gilbert, first VP, resident director in the Naperville, Ill. office of Merrill Lynch. "You need a CFO if you don't have time to analyze financials, financials are beyond your capabilities, if you're traveling a lot or for any number of reasons.” Consider, too, the merits of building a board of directors comprised of people who are willing to tell you when you're off base and when you're onto something. "You don't want your best friends, but a tough entrepreneur, banker or lawyer—people with no agenda other than to give you the best advice," says Waterhouse.

Know what drives profitability. For example, it could be that your superior customer service is the reason you have done so well, and if you don't recognize that and grow so fast that the service quality is lost, your profitability will be lost, as well.

Compare, compare, compare. Benchmarking against other companies will give you valuable insight into how well you're doing in comparison to the competition. What should you look at? Well, much depends on the nature of your business and industry, but generally, anything that's important to your business growth and to your customers, says Hugh Pinkus, principal in charge of the cost management practice at 4-Gen Consulting in Des Plaines, Ill.

"Focus on mission-critical functions, not just what you can get your hands on. The information must be relevant," he adds, commenting that most companies haven't stopped to figure out what metrics they need to excel in. "They sort of know intuitively, but haven't fine-tuned it." For example, if your company makes screws and bolts, clients might care most about the time of orderto-product delivery. So benchmark your speed versus competitors. If cost is the client's chief concern, look at your price structure against the competition. "If you're not sure what to measure, go to your competitors’ websites. Find out what they are advertising and what they are touting as their selling points. How are you helping them sell to their customers? That's what you should focus on," Pinkus explains.

You might also benefit from reviewing the profit-and-loss statements of other successful companies to see how your marketing, operations, and other critical areas compare, suggests Waterhouse. Study up, too, on where they are advertising and where they are adding locations. Then there are key ratios to consider, such as gross profit percentage, income before tax, turnover of accounts receivables and inventory.

By benchmarking, "You can confirm that you've made good decisions, or see what runs contrary to your thinking. You might even be surprised to see that your business is dramatically different than others, which might be a good thing, or maybe not. You'll be awakened," says Waterhouse.

Reprinted courtesy of INSIGHT Magazine - "Corporate Financial Leadership Special Issue” (www.insight-mag.com), for the Center for Corporate Financial Leadership (www.ccflinfo.org).