Your company is finally up and running, but you’re ready to get out of the startup phase. Perhaps those 80-hour weeks aren’t so much fun anymore and you’d like to bring on some help, or maybe you’d just like your business to generate more revenue.
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Whatever your reason, you need to look before you leap. Before you consider growing your startup, you need to know that your business is ready.
Your Checklist for Smart Growth
Here are the things an entrepreneur must have nailed down before launching a growth initiative:
1. Positive Net Revenue: Top-line growth is critical, but without bottom-line growth, you’ll continue to sell off your company to get the funds you need. Pay attention to bottom-line growth, and you’ll still own the company you’re working for. This means analysing how efficient you are at acquiring and servicing customers. Why add more if each new customer will cost you money?
2. A Customer Focus: When you’re first starting up, your customer base might be all over the board because you scrambled and accepted anyone who was willing to sign up. It’s time now to create an ideal customer: one who will buy from you again and again, and one you can serve profitably.
3. Effectiveness and Efficiency: As a startup, effectiveness (keeping the doors open) was the most important thing. As you move from startup to established company, efficiency should become your priority. The only way you can handle more customers and more employees is to be ruthlessly efficient. Otherwise, the burden of growth will crush you.
Where should you look for efficiencies? Sales and operations are the first two areas you must refine before you grow. You’ll need more sales reps to expand, and they must become efficient at selling and moving what they sell to market quickly.
Next, look at your business processes from beginning to end, from finding a customer to acquiring him, discovering his needs, and meeting those needs. Are there redundancies? Activities you can’t explain? Manual tasks that could be automated?
Once you clean up your side of the street, you’re ready for growth — and that means carefully weighing your options for expansion.
Top 3 Paths to Growth
You can follow one of several paths to growth, each with its own unique set of advantages and disadvantages. Keep in mind that the route you choose will have a significant impact on the future direction of your company:
1. Cash Investment
The benefit to making a cash investment is that it’s your money. You’re free from the constraints that develop when others are in the picture, but spending your war chest on growth creates risk if the economy — or your competitive environment — turns sour. Of course, running a business always involves an element of risk, but all risk should be calculated.
2. Outsourcing
If you find a company that can perform your non-competitive commodity functions more efficiently than you can, outsourcing gives you the opportunity to refocus your limited resources on what you do better than your competitors. Just keep in mind that a bad outsourcing company is much harder to fix than a bad internal hire, and your outsourced partner’s work will be a reflection on your company.
3. Merger/Acquisition
The term “merger” is often misleading because there are never true mergers, just acquisitions. One party will always end up ruling the other. Make sure you go into the “merger” knowing which side of the coin you will fall on.
As long as both parties know who is being acquired going in, acquisitions can be great, fast ways to grow. I have a subsidiary that started with one employee. In the first year, we acquired five companies and now have 22 employees. That would not have happened so quickly without acquisitions.
Scale or Bail?
Before you undertake the work necessary to grow, you need to fully understand what you want. The question isn’t really if you would rather acquire or be acquired. You need to ask yourself what’s causing that itch to grow.
When push comes to shove, most companies have the option of either scaling or bailing. If you want cash, sell. If you want more cash, grow.
The right path to growth depends on you and what you want your future to look like. The real question is simple: Do you see yourself smiling in a boardroom or on a beach? You usually can’t do both, but the answer lies in the dreaming and scheming that got you there in the first place.
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