In the startup world, you hear the word "growth" a thousand times a day - from the growth of market share to mindshare to sales to revenue. Meanwhile, there's an obsessive emphasis on achieving all this growth at a blistering pace: Getting a minimum viable product ready as soon as possible, reducing your time to market, and so on. The "move fast and break things" ethos has always been central to the startup mindset.
However, while you'd assume that the fastest-growing companies end up being the most successful, this isn't always the case. For example, a study published in Financial Analysts Journal found that an "optimal point exists beyond which further growth destroys shareholder value and adversely affects profitability." This is because growth is pointless without scalability - when companies get larger, their overhead increases, logistical challenges proliferate, and day-to-day operational demands become more daunting.
If companies don't have the resources, personnel, or infrastructure to manage these changes, it doesn't matter how quickly they're growing - they won't succeed. This is why it's vital to focus on sustainable startup growth.
Ensure that you have a sustainable funding stream
In the early days of a startup, one question is lurking in the background of every discussion about how to improve the product, reach more customers, and grow the business: Do we have enough money coming in to keep the lights on? This is another cold reality of startup life: you could have the best product and the most talented team in the world, but without sufficient cash flow, you don't have a company.
This is where investors come in - from the "friends, family, and fools" who provide the first modest infusions of cash to venture capital (VC) firms that can help rapidly growing companies scale in exchange for equity. Of course, there are also financial institutions that will provide funding without asking for a share of ownership.
However, banks often require strict personal guarantees that could lead to the forfeiture of assets (such as a business owner's home) and a mountain of documentation. This is why the Federal Reserve's 2019 Small Business Credit Survey found that small business owners are more frustrated with wait times for credit decisions than any other issue with traditional lending.
But there are plenty of alternatives. Clearbanc offers a straightforward revenue sharing option that charges a flat fee of 6 percent to 12.5 percent for investments between $10,000 and $10 million. And because Clearbanc's data analysis platform allows it to assess the viability of the businesses it supports (with indicators like customer acquisition costs, ad performance, and revenue), it can make funds available in less than three days. Meanwhile, Square Capital offers loans ranging from $500 to $250,000 to companies that use its payment services. Like Clearbanc, it's capable of doing so much more quickly than a bank because it already has access to data about the financial health of its customers.
If you're going to work with a VC firm, make sure it understands where you're at in the growth process and how you can move forward in a sustainable way. For example, Defy is an early-stage VC firm that specializes in helping companies maintain sustainable growth immediately after receiving seed capital.
No matter what form of funding you pursue, your financial partner should be able to help you scale as sustainably as possible.
Take care of your most important asset: your people
A recent Gallup survey found that "two-thirds of full-time workers experience burnout on the job." The survey also reports that "Burned-out employees are 63 percent more likely to take a sick day and 2.6 times as likely to be actively seeking a different job." Among the top causes of burnout cited by Gallup are "unmanageable workload" and "unreasonable time pressure" - demands that are particularly common in the fast-paced world of startups.
Many entrepreneurs are prone to burnout because, as a 2018 article in Harvard Business Review puts it, they "tend to be extremely passionate about work and more socially isolated, have limited safety nets, and operate in high uncertainty." These factors can lead to increased stress, which causes burnout. According to a study in the Journal of Research in Marketing and Entrepreneurship, burnout has a "negative impact on organizational commitment, organizational satisfaction, and relative perceived firm performance."
Stress among C-suite executives and managers can also lead to a tense and high-pressure work environment, which will lead to burnout among your employees. But all these problems can be avoided - each of the causes of burnout listed in the Gallup study has a corollary. If your employees are being forced to do too much under suffocating time constraints, the best way to ensure long-term productivity is to lighten their workload or invest in labor-saving tech (such as artificial intelligence applications that handle backend work). If employees feel they aren't being treated fairly or their roles aren't clearly defined, these problems can be addressed with clear and open communication about problems and expectations.
Your employees are your most important asset, and putting their interests first is one of the best ways to maintain sustainable growth.
Develop sustainable practices across the company
In the two decades between 1995 and 2015, the survival rate for new companies was remarkably consistent. According to data from the U.S. Bureau of Labor Statistics, around half of new firms failed within five years. And these numbers vary by industry - the five-year survival rate for companies in the information industry fell to around one-third in recent years.
Countless rapidly growing companies have failed, often because they overextended themselves. For example, Crumbs Bake Shop was once one of the fastest-growing companies in its industry, but it ran into serious problems after going public in 2011. Crumbs's aggressive expansion sent its overhead into the stratosphere, its equity quickly evaporated, and it failed to adapt when the market for gourmet cupcakes contracted. As Reena Aggarwal, professor of finance at Georgetown's McDonough School of Business, told the New York Times in 2014: "You have very high-growth companies come into the market and do a successful IPO. It's kind of the fad of the day. Then things go sour."
Consider all the ways Crumbs was ill-prepared for its growth: It had too many locations, its product wasn't innovative enough, and it didn't manage personnel and other resources in a sustainable way. This is a perfect reminder that efforts to ensure sustainable growth have to be made at every level - from the R&D team to the HR department.
But we shouldn't be too hard on Crumbs - when things are going well, it's only natural to adopt the mentality that has become so common in Silicon Valley: "Grow, grow, grow!" Instead of repeating those words like a mantra, your company should be focusing on exactly how it will grow as quickly and sustainably as possible.