Growing Your New Venture
Successfully managing the growth of a company is a huge topic. It's a topic of significance in modern MBA programs, and has many facets to which I can't do full justice in a short column. However, as part of five in my six part series on starting a successful company, I can offer you insight into three key interrelated areas you should keep top of mind while plotting the growth of your young venture.
They are vision, focus, and financing alternatives. Why these three in particular? They are undeniably the most important topics you will need to address to ensure the ultimate success of your business.
In operating and growing your business, you'll face a constant stream of choices to make--large strategic ones as well as smaller daily decisions. Through each decision, in some large or small way, you'll be adjusting your carefully prepared plan to the real and changing business environment. While this is normal, you'll need some consistent reference for making the choices you'll be facing. That reference should be your vision of the future of your company, which surprisingly includes your ultimate exit from it; your "end view of where you see your business going in the long term. Some questions you'll want to consider:
Do you see it continuing as a highly profitable small niche business that you would ultimately pass along to your heirs?
Do you plan on positioning it for an acquisition by a larger player in the industry; fully understanding that your role with the firm will likely end with, or shortly after, that acquisition?
Do you have dreams of taking the company public, and continuing on with the public company?
While specific exit strategies will be discussed in the next article, the clearer your answers to these and other similar questions about the long-term prosperity of you business, the easier it will be for you to make consistent decisions. You may find it helpful, as I do, to write down a description of the future state of your organization. Spending the effort in writing a clear description of that future state of your business makes it much easier for you to later articulate that vision to others.
Growing your company requires focus. Many young companies lose their way by attempting to grow by chasing every opportunity that comes along. While being opportunistic is the hallmark of entrepreneurial businesses, you need to do so in the context of your future vision for the company and your strategy for growth. No company can be all things to all people, and many have gone bust trying. You not only have to decide what your company will do, but what it will not do. Stay focused. Chasing lots of ideas diffuses your focus--chase those ideas that fall along the path to your envisioned future. Learn to live by the axiom: admire ideas, worship execution. Superior execution of a decent idea will always win over poorly executed great ideas.
You'll also have increasing challenges within your company as you grow. As the company grows, you'll need to ensure your company continues to keep its increasing resources, including its people, focused on performing tasks consistent with the business today and tomorrow. As your employee base grows, keeping your rapidly growing employee base aligned to the company vision will consume an increasing amount of management's effort. Again, having a clear vision of the future of the business is key. Share that vision with every new employee. Challenge them to ask themselves in their daily decisions whether the choices they are making are consistent with getting the company closer towards that vision.
There are a number of financing methods that companies can pursue as they grow. Again, the choices will largely depend on your "end view of the company. These financing models include:
- Self-financing (bootstrapping)
- Debt-financing (bank loans)
- Equity financing (private or public markets)
- Franchising (other owners capital)
These methods are not mutually exclusive. The majority of Inc. 500 companies, for example, start with self-financing and expand to other types of financing.
If you want to remain a small niche business, or keep control of your private company, then you'll need to stick with self- and debt-financing. If you want to grow the company quickly you'll want to pursue equity financing or franchising. Private equity financiers generally seek returns on their investments within a fairly tight time horizon--usually three to five years. For these investors to capture the value of their equity position in your venture, your company will have to go public (become traded on the stock markets) or be acquired at the end of that period. It is the rare venture capital-backed venture that becomes a publicly traded company--currently approximately 90% of successful VC-backed companies are being acquired. Alternatively, when you use franchising as a method for raising growth capital you are raising money from franchisees. Pursuing a franchising strategy will allow you to see your company's name on a growing number of storefronts, but you will not own them. Understanding the implications of each type of financing--and its congruency with your company's vision--is important in choosing which to pursue.
Being part of a growing successful enterprise, while hard work, is great fun--enjoy it! The next and last article in the series will discuss the many options you have and how to prepare for your ultimate exit from the business.
This article is part of a series on business creation. Read Tim Faley's previous articles: