Forbes posed an important question regarding the commonality among Merrill Lynch, AIG, Washington Mutual, Toyota, Starbucks, Dell, BP, Arthur Andersen and Lehman Brothers. It appears that, according to Forbes, they became obsessed with aggressively growing revenue or minimizing costs that they destroyed substantial value in their businesses. A common theme among these companies is the lack of a growth strategy.
Companies can inflict serious consequences on themselves with rampant and unstrategized growth. Shifting from being the top quality automaker to the leader in global sales left Toyota with recalled vehicles that numbered in the millions. Coffee giant Starbucks was served up slumping sales by taking the leap to open hundreds of stores, which ultimately commoditized its customers’ experience. It is well documented the consequences of BP’s move to cut costs and the resulting environmental, safety and regulatory shortcoming, often with disastrous results. Actually, the accepted adage that “growth is always good and bigger is better,” draws companies into unnecessary risks. It should be reconsidered.
Growing a company of any size comes with opportunities and challenges. The chance to become a market or industry leader is attractive, but it comes with the risk that demand will outstrip capacity. To avoid that pitfall requires a strategic plan that’s backed by adequate financing, empowered employees, and the right information and communications technology. Most entrepreneurs and many business leaders dream of meteoric growth, but fast growth can be a doubled-edged sword.
“Fast growth can kill your company if it’s not well managed,” says Patrice Bernard, Senior Vice President, Financing and Consulting, at BDC. “You have to define your growth objectives, and then decide how much growth you can support and how much financing you need to support that growth.” The first step, he advises, is a well-thought-out growth strategy that identifies the human resources, processes, tools and information systems that will be needed to meet targets. Expect the need to introduce new information and communications technology to improve sales, productivity and financial controls. In addition, it is important to anticipate expanding facilities, adding machinery or hiring new talent.
Managing growth effectively is all about making sure the business has the resources to deliver as demand increases, and the time to spot any potential problems before they bring the house down. In the beginning, most new businesses rely upon a single individual to lead and manage all aspects of the business. Decision making, even on the most intricate and mundane aspects of daily operations, is often channeled through this wearer of many hats. Growth, planned or unplanned, requires creating an organizational structure that decentralizes decision making and responsibility.
Whether it’s hiring at a rapid pace or finding office space, a key to success during a time of growth is flexibility. A successful growth strategy depends on a flexible management structure that allows a business to respond quickly to market demands. The least effective structure is one that adds layers of bureaucracy that stifles an organization’s agility. So when it is necessary to hire more people to handle more customers, doing it without creating road blocks to decision making is key. “We created a culture where we try to push decision making down to the organization closets to the problem,” says Zack Urlocker, Chief Operating Officer at Zendesk, the San Francisco-based online helpdesk company that grew from 20 employees to 85 in a year. “That’s often a challenge for small companies where early on everybody knows everything that’s going on. We want to have engineers making great decisions and sales people making great decisions.”
Knowing when to make investments, whether expanding human talent or adding space, is critical. Adding costs and ramping up too far out in front of the curve of growth can cause serious cash flow issues and devastate an emerging company. Successful companies grow successfully by remaining dedicated and focused on their mission, consistently questioning and reevaluating early plan assumptions and being flexible in the implementation of a smart growth strategy.