Super-fast growth requires business owners to be extra careful, or they can bankrupt their startup by mismanaging cash flow; by being inefficient; and by not keeping up with ever-increasing costs and overhead. Some entrepreneurs sacrifice profitability, deliver subpar products and services, cut back on 24/7 customer support, or can't build an infrastructure fast enough to keep up with demand.
There are other risks. Inability to collect receivables or losing a big client reflect the many risks of scaling. Unlike global companies, a startup's revenue stream is concentrated. Other operational risks reside in a few failure points, especially those that significantly affect cash flow.
Half of small businesses fail after 5 years, according to Bureau of Labor Statistics. Family and friends of an entrepreneur often think that only slow sales threatens a startup's existence. But so too does scaling operations too quickly. A founder often won't have enough cash to buy larger inventory levels, or may not have the skills to forecast cash requirements for the next few months. Debt might also run amok. Yet, creditors and bill collectors are always demanding to get paid.
Here are 4 things entrepreneurs must do to manage unexpectedly fast growth.
Scale Talent and Build Infrastructure
Extreme growth makes hiring talent a critical success factor. A founder gets overwhelmed at day-to-day tasks, and he/she must quickly hire new managers and employees who cover his weaknesses and bring skills needed to run a larger organization. An expanding venture must also remain operationally efficient to prevent bloated costs and keep cash flow ahead of the curve. It can feel like constantly swimming to keep your head above water while a turbulent tide rises fast.
Major issues in inventory management, customer support or working capital (like collecting receivables) could bankrupt a firm. A growth business needs more cash flow to keep up with ever-increasing expenses. Thus, a finance manager or CPA must forecast cash flow, and also keep an eye on profitability. A scaling venture that sacrifices profitability can risk going under without financing from the founder, investor or a bank (through a line of credit).
"I invested a lot of time and resources to hiring and training talent," says Kevin Zhang, an entrepreneur who grew a successful ecommerce business in just one year. He says scaling at a fast pace requires extreme delegation, which is only possible if your employees know their job. Zhang says, "I automate nearly everything I have to do so that I actually don't spend much time in the day-to-day operations. This has allowed me to concentrate my time on growth and new opportunities."
With $3,000 in the bank, Zhang started several ecommerce male apparel and accessory brands. Zhang reinvested all profits back into the company during the first 4 months; hired over 60 employees in a year; and now spends 1-2 hours daily on operations to focus on new opportunities.
Time is fixed: There's only 24 hours in a day. Entrepreneurs must obsessively free up their time and pursue activities only they can accomplish or which adds the most value. Employees must do their jobs and not assign tasks to their bosses. Non-critical activities cannot monopolize a CEO's attention.
Focus on Big Opportunities
A founder who delegates effectively can focus on big, mass-market opportunities that can significantly move the needle. For that to happen, the right talent must be hired and retained for the right roles.
New employees must be trained on systems and processes. That enables the business to continue to offer high quality merchandise and service that grew the company in the first place. Proper training prevents employee burnout, and avoids unnecessary mistakes that damage customer relationships.
Another example of extreme growth is New York-based Magnet Mount, a luxury phone and car accessories firm whose explosive growth saw 100,000 new customers in 2 years. According to 2019 data from Pew Research, 95% of Americans own a cellphone while 81% own a smartphone. That means 266 million Americans have a smartphone.
Founder Cooper Weiss says the timing was perfect as demand exploded for functional, beautiful products that charge, mount and support smartphones. The startup brought convenience by offering products like 3-in-1 wireless chargers for the iPhone, AirPod and Apple Watch.
Weiss started his first company at 17 by producing and marketing the fidget spinner. "Always be on the lookout for what mainstream people need. In other words, find big opportunities. I started Magnet Mount when I noticed there was a lack of luxurious car accessories in the market. We have now built a strong brand ... and have built a loyal customer base on a wide array of products."
Concentrate on the Customer Experience
While unexpected and rapid growth might be what entrepreneur's dreams are made of, the customer experience should not be sacrificed in the process. The customer experience must remain central to a company's mission and should not be taken for granted. This is especially true if your customers are used to a high level of customer care. If you get so busy that call wait times soar and the individualized attention plummets, you run the risk of turning away even your most loyal customers.
"At SetSchedule, we obsess over the consumer experience," says Roy Dekel, CEO of SetSchedule, the 5th fastest growing real estate company in the US. "Of course new business is a priority for us, but even more important is repeat business. Anyone can sell someone something once, but for me the true test of a product's or service's quality is if consumers come back."
Implementing social media polls or distributing feedback surveys are great ways to take the temperature of your customer base's level of satisfaction. These can also help highlight ways in which the customer experience might be suffering as a result of your growth so you can adapt accordingly.