Managing Fast Growth
Fast growth in and of itself can help motivate employees and help project a very positive image to customers. So trumpet your successes continually to both employees and customers!
When setbacks occur, explain them to employees. But, certainly, depict them as small blips in your course to success. Everyone wants to feel like he or she is on the winning team or buying products or services from the winning team. Success does breed success.
Sustaining fast growth can be tricky, though. Preserving cash, keeping people motivated, and continually finding more office space are just a few of the issues that you will encounter. The farther in advance you can plan and prepare for such challenges, the more likely it is that you will be able to minimize any negative effects.
Following are a few of the growth issues you may have to contend with.
A fast-growth business means lots of hiring. And it’s very easy to underestimate the time and direct costs of hiring lots of new people—and the right people. You will need to spend considerable time developing job descriptions, posting help-wanted ads, sorting through resumes, conducting and arranging phone and in-person interviews, and checking references. Even if you are very busy with other issues, you can’t afford to skimp on the amount of time required to conduct a careful hiring process. If you hire someone who can’t perform the job satisfactorily, your business performance will most likely suffer. If you have to fire someone you will engender bad morale and run some legal risks. Or you may hire someone who can adequately perform the task, but has an attitude problem — the hiree might want to be doing something else or working at another firm. This type of person will not perform to his or her full potential and may quit. Either way, you will have to go through the entire time-consuming hiring process again.
Unless your company is large enough to have a human resources manager, this time will be spent by you or other managers. It is time taken from the management of ongoing business activities. It is difficult to predict how much time will be involved in filling positions, especially senior positions, because the response to help-wanted ads can fluctuate greatly from one week to the next and, even with a terrific response, it is difficult to gauge how interested any given candidate is in the job until you actually offer it.
Help-wanted advertising can be expensive. Many small businesses underestimate the out-of-pocket costs necessary to conduct a employee search. Because responses to help-wanted advertising can be erratic, firms often find themselves advertising over an extended period of time in order to attract qualified candidates—especially for more demanding positions. Be prepared for the cost!
While every business benefits greatly from having good people, the importance of having above-average people in a fast-growth business can’t be overemphasized. Workloads will constantly be expanding and may not be predictable. New issues and problems will constantly pop up and innovative solutions will have to be implemented quickly. You need people who can think on their feet, adapt well to constant change, and put in the extra hours that will be needed to get you through the unusual pressures and surprises of managing a business in upward transition. You need people who can get excited about being a part of your growing business!
One of the thornier issues you are going to confront in a fast-growth business is that some people, even those who are committed to your business and work hard, won’t be able to adjust to the changes brought about by growth. For example, the person who supervised two people in your warehouse well when you first started out may not be able to manage a team of forty. As the business grows you need to make hard and objective assessments of your key managers. Are they up to handling an increased or changing workload? Can a strong assistant, supplemental education, automation, or computerization bring a weaker manager up to speed? Do you need to bring in a more senior manager to oversee that person’s work? Or do you need to make the most difficult decision of all and replace them? Even one weak manager in a key position can really drag down the performance of an entire organization.
The impact of new people
Current employees often feel threatened by the influx of new personnel. Senior employees are likely to feel that their stature within the organization is being undermined, and less senior people may feel that they are being neglected.
Before you advertise for new positions you should work to retain the confidence of existing staff. Involve your employees in the process of structuring new positions. If a new position will cut into the responsibilities or authority of a current employee, meet with that employee privately to discuss the need for an added position and, if the employee’s performance has always been satisfactory, say something positive about that performance or contributions to the company. Emphasize your confidence in his or her ability to continue being a positive asset to the company. Post all job openings internally at the same time, if not before, you place outside advertising.
When you are interviewing candidates for new positions, consider having all employees who may be threatened by the new position participate in the interviewing process. This will make them feel more confident about their position within the organization and less threatened by the new hire.
Fast-growth businesses burn money! Even with good profits, there will almost certainly be times when a growing business will run tight on cash as expenditures occur before related sales are realized. Businesses with inventory or receivables will run into this situation particularly fast. But all fast-growth businesses are going to run into plenty of unforeseen costs.
The faster a business is growing or changing, the more difficult it will be to plan future expenditures or income. But you must! Careful planning and constant updating of plans, particularly cash flow projections, is of tantamount importance in a fast-growing business. While most businesses may do a major overhaul of their projections and business plan once a year, with minor updates monthly, a fast-growth business should consider completely revamping its plans, or at least its cash flow projections, several times during the year as significant deviations from what was projected occur in ongoing sales and/or expenditures.
Because fast-growth business expenses have a tendency to skyrocket faster than sales, you need to stay on top of the changes in projected cash flows. This will enable you to make timely cuts in expenses and, if necessary, slow growth so that you don’t run out of money. Have in mind which areas can easily run on less cash or maintain momentum even with less growth.
In a fast-growth business it is very easy to become excited about rapidly rising sales and lose track of profits. This is especially true when an organization shifts from a very small entrepreneurial organization to a professional organization with many managers. Be aware that during the transitional phases overhead expenses can mount rapidly!
Fat profit margins are essential for growth. If you are trying to attract outside investors, banks, or other lenders, they will want to see good, healthy profit margins. More sophisticated lenders and investors will also pay a lot of attention to the trends in your profit margins. You will need fat profit margins even if you are trying to finance growth internally. A business with a 10 percent profit margin can financially sustain twice the growth rate of a similar business with only a 5 percent profit margin.
Fat profit margins leave more room for error. With thin profit margins even a small mistake or expense underestimation can plunge your firm into an unprofitable state.
It is easy to underestimate the impact of taxes when planning for a growing business. Don’t assume that taxes rise parallel to raises in sales. As your business becomes more profitable and grows, your tax bill will likely increase at a higher rate than anticipated because either you personally, or the company (if it is incorporated), will move into a higher tax bracket.
You should also remember that the size of your quarterly tax estimates will need to increase in order to cover the total yearly increase in taxes.
A fast-growth business may need an increasing amount of space to house additional equipment and/or personnel. You could anticipate growth and lease an initial space that will accommodate plenty of future growth, but this commits you to a space larger than you need now and squanders money needlessly. Or you may find a landlord willing to rent space on a short-term basis—six months to a year—so that you can upgrade square footage with some immediacy. But moving can be disruptive to operations. What should you do then?
Compromise! Try to attach an option to your lease that allows you to continue renting for renewable twelve-month periods of time after an initial two- to three-year firm commitment. And look for a facility that has a small amount of growth space for your operations. If your space becomes crowded, explain to your employees that these conditions aren’t forever and that you foresee moving to a more spacious facility soon. If the overcrowding is severe, consider renting a separate, nearby space for one group or department until such time as you can rent a space large enough to hold all of your staff.