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.
However, when setbacks occur, explain them to your employees as well. But be certain to present them as merely small blips in your course to success. Everyone wants to feel like he or she is on the winning team or even 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 further 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.
The following are a few of the growth issues with which you may have to contend.
1. A Fast-Growth Business Means Lots of Hiring
It’s very easy to underestimate the time and direct costs of hiring lots of new people – and hiring 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 may engender bad morale throughout your company and possibly run some legal risks. Or you may hire someone who can adequately perform the task, but has an attitude problem – they might actually want another position in the company or even desire to work 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, the hiring and onboarding procedures will be the responsibility of you or other managers. The response to your job postings can fluctuate greatly from one week to the next. Even with a massive response, it may be difficult to gauge the actual interest of any given candidate in the job until you actually offer it to them. This entire process may involve time that was previously dedicated to the management of other ongoing business activities. It is difficult to predict how much time filling positions, especially senior positions, will involve.
Conversely, using recruitment services and/or online job sites to fill a position can be expensive. Many small businesses underestimate the out-of-pocket costs necessary to conduct a thorough hiring campaign. Because responses to ads can be erratic, firms often find themselves advertising over an extended period of time in order to attract as many qualified candidates as possible, especially for more demanding positions.
Of course you can try to recruit candidates yourself by trolling on social media. But don’t kid yourself: to do this well is going to take lots of your time, and your time is money.
2. Exceptional People Are the Key
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 may be constantly expanding and that expansion may not be predictable. New issues and problems will constantly pop up, and innovative solutions will have to be implemented quickly. You’ll need people who can think on their feet, who adapt well to constant change, and who are willing put in the extra hours needed to help get you through the unusual pressures and surprises of managing a business in upward transition. You’ll need people who can get excited about being a part of your growing business.
3. Look Out for Stagnant Managers
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, aren’t able to adjust to the changes brought about by growth. For example, the person who successfully supervised two people in your warehouse when you first started out may not be able to manage a team of 40.
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, the offer of supplemental education, department automation, or computerization help 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 drag down the performance of an entire organization.
4. The Impact of New Hires
Current employees often feel threatened by an influx of new personnel. Senior employees are likely to feel that their status within the organization is being undermined, while less senior employees may feel that they are being neglected.
Before you post listings 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 the new position. If the employee’s performance has always been satisfactory, say something positive about their performance or contributions to the company. Emphasize your confidence in his or her ability to continue being a positive asset to the company. Finally, post all job openings internally at the same time, if not before, you place them in 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 own position within the organization and perhaps less threatened by the new hire. I personally like to get as many opinions as I can about new hires, because it is such a subjective process.
5. Fast-growth Businesses Burn Money
Even with good profits, there will almost certainly be times when a growing business will run tight on cash. Expenditures often occur before related sales are realized. In particular, businesses with inventory or receivables may run into this situation quicker than others. But, in general, all fast-growth businesses are going to run into plenty of unforeseen costs.
6. Cash Flow Projections Are Especially Important
The faster a business is growing or changing, the more difficult it will be to plan future expenditures or income. But doing so is a must. Careful planning and the constant updating of those plans, particularly cash flow projections, is of paramount importance to a fast-growing business.
Most businesses may conduct a major overhaul of their projections and business plan once a year, with minor updates monthly. But 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 ongoing sales and/or expenditure projections can occur.
Because fast-growth business expenses have a tendency to increase faster than sales, you’ll need to stay on top of the changes in projected cash flow. 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 a list ready of areas from which you can potentially cut costs if cash flow becomes tight.
7. Watch Your Profit Margins
In a fast-growth business it is very easy to become excited about rapidly rising sales and to lose track of profits. This is especially true when an organization shifts from a very small entrepreneurial organization to a larger professional organization with several 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.
Fat profit margins leave more room for error. With thin profit margins, even a small mistake – an underestimation of expense for example – can plunge your firm into an unprofitable state and jeopardize positive cash flows.
8. Tax Estimates Can Sneak Up On You
It is easy to underestimate the impact of taxes when planning for a growing business. Don’t assume that taxes will rise parallel to an increases in sales. As your business becomes more profitable, your tax bill may jump as you move into higher tax brackets or if you are required to base your tax estimates on a more profitable prior tax period. Adjust your projections for quarterly income tax estimates if the circumstances have significantly changed.
9. Find Flexible Facilities
A fast-growth business may need an increasing amount of space to house additional equipment and/or personnel. You could lease an initial space to accommodate anticipated future growth, but this commits you to a space larger than your current needs and squanders money needlessly. Or you may find a landlord willing to rent you space on a short-term basis – say, six months to a year – so that you can upgrade square footage with some immediacy. However moving can be disruptive to your current operations. What should you do?
The answer: compromise. I have found landlords often push for five-year minimum commitments. However, with regards to a lower quality space (such as the one that I rent), landlords often end up being more flexible if you really push them. So for example, rather than sign a five-year lease, I might instead sign a two-year lease with two additional two-year terms – the second two-year term at a slight bump up from the rate for the initial term and the third two-year term at the “market rate.”
I would also recommend starting with a space that allows for growth in employment size, even if it means compromising on the quality of the space to fit your budget.
If your current workspace is becoming crowded, explain to your employees that these conditions aren’t permanent and that you foresee moving to a more spacious facility in the near future. If the overcrowding is severe, consider renting a separate nearby space for one group or department until you can afford to rent a space large enough to house all of your staff.
Sure, having to house your employees in two different offices, even if those offices are close by, can be highly disruptive. But renting too much space and running out of cash is even more disruptive.
Takeaways You Can Use
- Fast-growth businesses need to be managed much more carefully.
- Stay on top of your cash flow projections.
- Plan for adequate facilities to house your growing staff.