6 Classic Ways to Crash Your Company
Every fast-growth company eventually runs into at least one of these all-too-common obstacles. How you handle them can make the difference between success and high-speed smashup.
Some entrepreneurs just don't know how to operate in first gear. That's certainly true of the company builders featured in the September issue of Inc. The median growth rate of Inc. 500 companies from 2008 to 2011 was 1,435.9 percent. And when you're traveling at that kind of velocity, encountering an obstacle can be downright painful--and, in some cases, even fatal.
What kinds of obstacles do fast-growth companies encounter? Gary Kunkle, an economist and research fellow at the Edward Lowe Foundation's Institute for Exceptional Growth Companies, has long wondered the same thing. To get deeper inside what makes successful (and unsuccessful) businesses tick, Kunkle has constructed a vast database of some 45 million workplaces. He has collected more than 250 data points on each of those companies and can sort them by more than 400 factors, such as industry, size, and location.
Kunkle recently completed a study of 4,000 fast-growing companies in Pennsylvania. (The survey was sponsored by the Team Pennsylvania Foundation, a nonprofit economic development agency.) He then surveyed 600 of them. He visited their headquarters and held focus groups with their CEOs. It soon became clear that these companies had more in common with one another than they did with industry peers or businesses of the same size. In fact, these growth companies shared the same struggles, regardless of those factors. "These challenges transcend the industry you're in, the location you're in, or the size you are," says Kunkle.
We asked Kunkle to help us identify the challenges that all fast-growing businesses face. They're listed below, along with case studies showing how current Inc. 500 entrepreneurs managed to overcome them. If you plan to join the Inc. 500, you can expect to encounter these traps, too. The secret is not to let them slow you down.
1. Your Business Outgrows Its Staff
Scenario: The people who got you to $5 million aren't the ones to get you to $50 million.
In 2008, Black Elk Energy closed its first deal, to develop a single gas field in the Gulf of Mexico. And the company's logistics manager did a bang-up job of getting workers out to the drilling platform and back.
About a year later, Black Elk signed its second deal, this time to develop 30 oil and gas fields. Suddenly, the logistics manager had a very different job. Moving people and equipment was the easy part. Now, she had to figure out how to get the most efficient use of the company's helicopters, boats, and other resources.
And so it was that Black Elk CEO John Hoffman found what many entrepreneurs have learned: As a business grows and its challenges become more complex, you may need a whole new staff to deal with them.
Black Elk's early staff members were excellent tactically, Hoffman says. But some lacked strong strategic skills. They were doing their jobs, but they weren't measuring what they were doing; as a result, managers lacked the metrics they needed to boost the company's efficiency and productivity.
Yet Hoffman was reluctant to part with his original employees. "It's very easy to say, 'You no longer fit, so you have to go,'" he says. "But that's counter to our culture." Early employees took a big risk in leaving their corporate jobs to come work for a start-up, he says. What's more, there's a major talent war afoot in the oil and gas industry. If Hoffman has good people, he wants to keep them.
So when he has to tell someone that his or her job has outgrown him or her, Hoffman tries to make it a positive experience for both parties. That's not always easy. In most cases, Hoffman says, the employee does not understand the gap in competency. To make his point, Hoffman assigns employees a difficult but not unrealistic assignment. For instance, he asked his logistics manager to figure out how many passenger miles the company's helicopters flew every day. Then he asked how Black Elk might increase its passenger seats per mile.
The logistics manager couldn't answer these questions, which Hoffman says is what made the light bulb go on: "Then you can have a real, honest conversation that isn't personal." In such situations, he takes pains to explain why the company needs a different type, or level, of expertise. "If you allow them to understand your needs and why it's important, nine times out of 10, they want the company to be successful," he says. He doesn't cut anyone's pay, but he does not hesitate to recruit the talent the company needs. The original employees get someone to learn from and can keep doing the things at which they are best. As Black Elk has grown, he has hired senior people in nearly every department.
Black Elk manages 98 fields and has $340 million in revenue. There are six people in its logistics department, including a senior executive recruited from the giant JX Nippon Oil & Gas Exploration. The original logistics manager is still with the company. Hoffman has had conversations similar to those he had with his logistics manager with about a dozen people in all departments. "We have zero attrition," he says. "So I think we're managing the right way."
2. You Wait Too Long to Hire
Scenario: Demand is surging. Where are the employees to handle it?
It's only natural for new hires to feel some pressure. But at FM Facility Maintenance, which runs facilities for companies with multiple locations, new account managers seemed to be having an extra-tough time adjusting. And the customer experience, CEO Jim Reavey thought, was beginning to suffer.
The problem, Reavey decided, was that he was hiring reactively. The solution: He now brings on account managers about 120 days before he truly needs them. That way, the new employees have plenty of time to absorb FM's culture and shadow an existing account manager before they get started.
According to Kunkle's research, most high-growth companies would benefit from a similar strategy. Still, it isn't easy. Reavey, for instance, tries to coordinate hiring with the deals he has in the sales pipeline, but if sales slow down or a big deal fails to materialize, those people do represent an added investment.
One way of addressing this problem, says Kunkle, is to follow what he calls the Chuck Noll approach, named for the acclaimed Pittsburgh Steelers coach. Noll always sought the best overall athletes rather than the best candidates for particular positions, reasoning that a great athlete can be trained to play a variety of positions. This works for entrepreneurs, says Kunkle, because they often have to hire before they know exactly what the new person will be doing or when he or she will be needed. By the time entrepreneurs realize exactly what they need, then start searching for someone to do it, it's often too late.
For Reavey, the best performers come from the military. He uses recruiters who specialize in veterans returning from Iraq and Afghanistan. They are trained in leadership and mentoring. And stress is never much of a problem. "They're great when things don't go their way," Reavey says. "When things get really busy, they don't panic. They keep their teams calm and focused on the customer."
Since 2008, revenue has grown to $350 million from $37 million. Reavey says FM's customers do not appear to have noticed the common backgrounds of many of his recruits. But he gives the new staff members the bulk of the credit for FM's success. After all, he says, "When you're in a pressure situation, it's never as much pressure as bullets getting shot at you."
