Exiting startup mode and transitioning into the growth phase can be a trying experience for entrepreneurs. Growth companies are beyond the white-knuckled survival days and playing a different game. There’s a lot more to know -- and a lot more on the line.
With that transition to the growth phase comes a whole litany of potential pitfalls -- what I call the seven deadly sins of growth companies. I’ve survived several of these while building Infusionsoft, and I have the scars to prove it.
Business owners in any phase need to stay abreast of the threats they face, but for growth companies, there are certain things to look for so they don’t stall, backslide or even die. Here are the seven deadly sins of growth companies.
1. Hiring the wrong leaders.
If you’re not hiring leaders that align with your company’s purpose, values and mission, you’re asking for trouble. As Scott Martineau, my co-founder says, “Hiring these ‘misfits’ is like taking a jackhammer to the foundation of your business.” As your business grows, it can be tempting to make an exception for a hotshot prospect or a seasoned exec, but it’s not worth it in the end. They will inevitably cause chaos you don’t need.
2. Hiring people with too much experience.
Remember, a growth business with roughly 25 to 100 employees and $3 million to $10 million in revenue is still not a massive enterprise. Bringing in people who lack an entrepreneurial spirit can often backfire in this stage. The trick is to build a team that blends the right amount of experience and entrepreneurship. It can be a difficult task, but one to stay conscious of as you grow.
3. Being cheap with payroll.
This is the flip side of hiring people with too much experience. I’ve run into a lot of business owners that don’t want to pay for the experience the company needs. If you don’t mix in a little bit of “been there, done that,” you might save on payroll, but you’ll pay for it in the school of hard knocks. And sometimes those hard knocks put you out of business.
4. An unwillingness to invest in systems.
I remember how shocked I was by the price of telephones, software, computer equipment and furniture as we moved through this growth stage. I bitterly and regretfully wrote those checks, only doing so once I saw it was absolutely necessary. While that reluctance is probably a good thing (because spending too readily will drive you to the poor house), there were times I stunted our growth because I would not purchase big-ticket items, as a matter of principle. That stubbornness was not helpful.
5. Not enough cash on hand.
Growth consumes cash and the faster you grow, the more cash you need. I don’t know how many entrepreneurs I’ve met who are morally opposed to using debt or equity financing to grow their business, yet they expect to grow 100 percent per year. It won’t happen. You need to either raise capital or slow your growth. If you try to grow fast without sufficient cash reserves, you will kill the business. To me, this is the saddest form of business failure.
6. Failure of sales and marketing to adapt.
The growth-phase entrepreneur cannot be a one-trick pony, relying on one strategy, one partner, one advertising source, one star sales leader or one industry factor. One is a very bad number in customer acquisition. Evolve the marketing machine or run the risk of going back to an earlier stage -- or going out of business altogether.
7. Lack of a strategic plan.
Once you move past 25 employees, the lack of a clear strategic plan can lead to well-meaning employees running in 25 different directions. Either that, or you’ll have 25-plus employees who are stuck in one place, unwilling to move or innovate for fear of being “out of line.” Either way, the lack of a clear strategic plan will hamstring the company. Leadership needs to clearly communicate where the company is headed, and employees will thank them for it.
For those running small businesses, the growth phase can be as exciting as it is challenging. The key is know the things that can inhibit your growth and be smart about overcoming them.