Pace Yourself: Running a Business Is a Marathon, Not a Sprint
Pacing is tough for any startup. Usually the problem is getting things moving quickly enough. But you can run into a different pacing problem when things move too quickly. Maybe you're hiring at a scary rate or expanding faster than you can keep track of where you have offices. Moving fast can turn deadly if you burn out resources and opportunities too soon.
Here are six tips on how to pace things for the long run.
Be thoughtful about the money you take.
A hot idea can build the pressure to take more investment than you need, like an institutional investor or VC that has a minimum commitment of $5 million even though you only need $1 million. That can turn into management trouble.
"You think of it as a nice problem to have, but it's as stressful as not having sales," said Peggy Wallace, managing partner of Golden Seeds, an early-stage investment firm that focuses on women-led companies. She recommends talking thoroughly with investors about your plans and their expectations at the start. Wallace also called early debt a "fatal area" if the company isn't mature enough to manage interest payments with a dependable cash.
Know when to take an opportunity and when to pass.
John Torrens, and assistant professor of entrepreneurial practice at Syracuse University, is also an entrepreneur, running an early childhood special education business. A couple of years ago a few smaller competitors were going out of business. He was tempted to get their contracts and hire their people to boost growth. But he already had a business plan with executive team buy-in and limited resources. The opportunity caused "the business equivalent of attention deficit disorder," according to Torrens.
"It's important to decide what you'e not going to do," he said. "Sometimes the best thing to do is let the opportunities go to someone else and let them struggle." He passed. When another opportunity appeared last November, the business was in a different position and could take advantage.
Be sure the business model will ultimately deliver.
Rowan Gormley, CEO and founder of NakedWines.com, remembers when he worked with Virgin Group in the 1990s. He had "spectacular successes" with the Virgin Money and Virgin One Account new divisions and then had a new idea: an online wine-selling venture called Orgasmic Wine.
"The business took off," Gormley said. Virgin took part and the name changed to Virgin Wine. They raised $30 million. The company paid for a sophisticated IT system and increased headcount. "We had ad campaigns, pool tables in the office, all the standard dot com startup stuff. And the sales didn't budge." Unlike Virgin Money and Virgin One Account, this business didn't have a new market model that could sustain the expected growth. Now Gormley's working a new approach in which subscriptions pay for vintages before they're bottled.
Make growth smart and controlled.
For a decade before Eugene Borukhovich helped start Color Eight and its trust-based social search application, Q!, he was an intrapraneur within a large healthcare organization. He started a European division but tried to grow too quickly. They tried to be everywhere in Western Europe "without realizing that the culture, the healthcare systems were different," Borukhovich said. The result was a lot of chaos and not much success. "It takes a strong leader to say we need to pause and bring in the right people to balance the technology organization with the channel, sales, and business development."
Forecast and don't ramp up too late.
One way to avoid hitting the wrong pace is to forecast smartly. But that can be harder than it sounds, says Raj Sheth, CEO and co-founder of Recruiterbox, an online service to track job applicants.
Without venture money, he had to work on a three to six month forecasting window and estimate revenue. He might be able to either hire someone or run a marketing campaign. Sometimes revenue would be higher than originally expected. "I realize that I have made more revenue than I anticipated, but I also realized that I'm not going to be able to deliver on my product features to my customers because I have two people less than I thought I have," he said.
Not only must you anticipate the type of people you'll need, but also how long it might take to bring them up to speed. Spending extra on someone more senior might cut some critical unproductive time help support company growth.
Understand a qualified pipeline.
Dr. Vincent Berk has been the founder and CEO of network security startup FlowTraq since 2008. He has to balance financial caution with the need to grow quickly enough to keep competition at bay. But forecasting can be difficult because of salespeople.
Many entrepreneurs are technical, analytical, and put too much faith in sales forecasts, according to Berk. "Salespeople are mostly really good at selling themselves," he said. The entrepreneur might not discount the forecast appropriately to get a realistic view of the pipeline. He ultimately had to hire an experienced vice-president of business development and sales to learn how to bring forecasts down to reality.
Moving quickly is fine. Just be sure that you don't move so fast that you find the feet of your business up in the air.
ERIK SHERMAN | Columnist
Erik Sherman's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.