For companies that survive the perils of being a startup, the growth phase that follows can often be even more daunting. During periods of high growth, companies and their executives are challenged on many fronts, and missteps can often lead to a deterioration in customer service, or worse, failure of the company altogether. Here are a few common mistakes I've seen companies make during this critical stage of development, along with some thoughts on how to avoid them.
Not building enough scale into operational systems. Companies need to think carefully about projected transaction volumes and the operational requirements necessary to service those volumes. Operational systems and workflow mechanisms that are inadequate will undoubtedly break down and can bring a company to the brink of disaster. So it's critical to plan ahead and determine whether system platforms need to be upgraded or redesigned to provide scalability.
Failing to anticipate cash needs. Cash is the lifeblood of any business, and not having enough of it can be devastating, no matter how great a company's product or service. This is especially critical during periods of high growth, as the cash needs of a business often increase dramatically. Here, planning ahead is the key. While some cash needs may be more obvious (e.g., facilities expansion, equipment purchases), others may be more difficult to quantify (e.g., uncollected cash from customers, the financial impact of sales cycles, gross margin impact at growing sales volumes). This is where a good CFO can help, even if it’s a part time CFO.
Poor contract management. When companies are young and entrepreneurs are in the heat of battle, it's easy to pay less attention to the details of contracts with customers, vendors and others. The overriding goal is often to get the deal done and worry about the other stuff later. Unfortunately, if contracts aren't cleaned up before a company enters its growth ramp, mistakes that seemed minor before can come back to cause problems with customers, vendors, lenders, regulators, and potential investors. So it's often a worthwhile exercise to identify critical contracts, have a qualified attorney review them, and establish an effective management mechanism in place before significant growth occurs.
Neglecting the IT infrastructure. Just like operational systems, the IT infrastructure needs to keep pace with a company's expansion. The proper functioning of computer hardware, software, and networks is critical to ensure employees are able to effectively perform their job tasks, and it may be time for an evaluation to determine if the right tools are in place as the company grows. Fortunately, with the expansion of cloud computing and outsourcing, there are numerous effective alternatives for managing the IT infrastructure.
Failure to staff key leadership positions. Entrepreneurs in early stage companies often find themselves wearing many hats, but as a company grows, it becomes nearly impossible for one person to effectively handle multiple leadership functions. Companies that wait too long to recruit key leadership expertise within the C-suite often lose out on optimizing the potential for success. Now is the time to carefully and objectively assess needs at the executive level – marketing, sales, operations, finance, legal, technology, and administration. As with IT, outsourcing these functions on a part time basis is often an effective strategy for leveraging top talent while holding costs in check. A part-time CMO, part-time CFO or part-time CIO, for example, can be just the right solution in a growth phase.
Jeffrey E. Good is a Certified Public Accountant and Chief Financial Officer with over 25 years of successful business management and executive leadership experience. As a Managing Director with Milestone, Good provides consulting for emerging and growth companies in the areas of management accounting, corporate finance and business strategy.