Every entrepreneur’s dream is to launch a startup that breaks growth records and becomes an industry leader. Growth is the whole point, right?
But like the old proverb goes, be careful what you wish for. Rapid growth comes with plenty of pitfalls, any one of which can ruin your business if you’re not prepared for it.
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Look past the Silicon Valley success stories, and you’ll see a valley floor strewn with shrunken shapes and dried bones of startups that grew too fast and collapsed under their own weight.
You’ll see companies like Zirtual, which boomed for four years, and then crashed after quickly burning through its cash. You’ll see RewardMe, which focused intently on customer acquisition at the detriment of its product and customer service; this ultimately caused its demise. Simply put, rapid growth is a serious business risk.
Common Rapid-Growth Pitfalls (and How to Avoid Them)
If you’re set to grow rapidly, buckle up — there are a lot of moving parts to consider. Here’s what you need to remedy or consider:
1. Your supply chain is weak
Your startup’s few suppliers and small manufacturing capacity will quickly fail you if you’re suddenly processing hundreds more orders per day than you were.
The goal here is simple: Keep your product available and the quality high. You don’t want the marketplace to be out of your product right at the moment people are thinking about it and looking for it. And remember, you’re building your reputation. Don’t allow your customers’ first brand experience to consist of waiting weeks for back-ordered items. But if you have to, bite the bullet for express shipping or expedited manufacturing — both worthwhile investments.
An easy, forward-thinking solution is to partner with a group purchasing organisation (GPO). GPOs often have no membership costs and can help you avoid gaps in your supply chain, no matter how big your startup gets. GPOs can quickly deliver hard-to-get products — and at a better price than an in-house procurement manager could.
The next challenge you’ll face — as you realize you’re growing too big for your current staff to keep up — is hiring.
2. You need more people
But you don’t have time to recruit, screen, and interview them all. That’s why you should consider hiring a recruiter to find great long-term employees (and hire freelancers in the meantime).
Find a trusted recruiter through your network, or use BlueSteps to hire a recruiter from the Association of Executive Search Consultants’ member database. The aforementioned Zirtual, which rebooted under new leadership, is a great place to find freelance team members to fill the gaps.
The biggest investment we made at Payability is in our people; we’ve staffed up our team, and we’re still hiring. We’re planning ahead to have the team members we need to continuously upgrade our design, ensure our clients are supported, and seek out new business. Again, this is about protecting the brand experience.
Once you have the supply chain to handle increased volume and the extra people to process it, you still don’t know if your systems won’t fall apart when you go from managing 10 clients to managing 100.
3. Put your processes through a stress test
If you haven’t done this, you’re not ready for rapid scaling. Processes that break down at high volume will ensure your customers have a negative brand experience.
The biggest investment in stress testing is your time — and then the money to fix any issues that turn up, like additional account representatives to answer client questions or additional servers to keep your website from crashing. You’ll need to keep your website fresh and updated as the company changes grows, so invest in strong website tools like Segment.io or WordPress. Advanced analytics tools such as Kissmetrics or Mixpanel can show you where your growth is coming from and how to maintain it.
All of this assumes, however, that you have the proper access to cash to make it happen.
4. You need working capital. Period
The biggest problem that product startups run into is lack of cash to fulfill purchase orders. Most corporate buyers don’t pay until 60 days — or more — after delivery.
As you serve more enterprise clients, expect to wait months between when you deliver a product and when you get paid for it. If you only sell one unit at a time, that’s fine. But what if you sell thousands at once? If you can’t fulfill the last few hundred units until you get paid for the first thousand, you’re in trouble.
Without working capital, your company can’t grow.
You can look for a bank loan to finance your receivables, or you can look for an alternative finance solution, such as a payment accelerator. For a small fee, payment accelerators pay your receivables now and collect the full amount from the customer later. This gives you the cash to fund your growth, such as new hires, new servers, and new products.
Yes, scaling can be challenging, and it represents a lot of risk for new startups.
5. Ask yourself one question. Is it worth it?
Personally, I don’t regret any of the investments I made to manage my startup’s growth — even the ones that turned out to be more expensive than I thought.
The clearest answers always come in hindsight. But unless you make a concerted effort to grow — and make the necessary investments for that rapid growth — you’ll never know what could have been.
