By Edward D. Hess
For many, achieving the American dream means taking control of their destinies, quitting their 9-to-5 jobs and opening the doors to their very own businesses.
If you re one of these brave souls ”pouring your blood, sweat and tears into running your own business ”there no time for rest. Once you ve got your startup off the ground, the daunting task of growing your business to the next level must begin.
With my own research and new book, I ve aimed to make the process easier. I recently studied 54 high-growth entrepreneurial companies based in 23 states, all of which were designated as successful growth companies by leading magazines or accounting firms. My research findings are the subject of an MBA course I teach at the University of Virginia’s Darden Graduate School of Business and the focus of “Growing an Entrepreneurial Business: Concepts & Cases,” which I wrote for entrepreneurs.
The companies in my study operated product and service businesses, had been in business on average 9.6 years and had annual revenue of $5 million to $350 million. They included Eyebobs in Minneapolis, Trilogy Health Services in Louisville, Ky., Defender Direct in Indianapolis, SecureWorks in Atlanta and Mellace Family Brands in Carlsbad, Calif. The companies understood that growth is change, and change is risky. Entrepreneurs who understand this are the ones with the best chances for successful growth.
Consider these top nine growth challenges facing today entrepreneurs:
Getting overwhelmed by growth. Growth requires more processes, controls and people. Too much growth too quickly can create financial, quality and reputational risks that if not properly managed can lead to the demise of the business. When you start to feel overwhelmed, let up on the gas pedal to allow processes, controls and people to catch up.
Knowing when to say no. Most successful startups have a plethora of opportunities. The challenge is choosing the right ones. Good opportunities are those that will enhance your company strengths and result in a compelling customer value proposition. Opportunities that don t fall into that category should be met with a no, thank you, or you might end trying to do too much for too many, diluting your focus and the quality of your product or service. Successful entrepreneurs often call it sticking to your knitting.
Learning to effectively delegate. For a business to grow, the entrepreneur must grow. You must evolve from being a doer to a manager of employees and then eventually to a manager of managers (a leader). This may sound easy, but it isn t. Most entrepreneurs don t like to give up control of any aspect of their business.
Transitioning from owner to leader. When you get to the point where you re delegating tasks, start developing as a leader and coach. Becoming a leader and coach is challenging because both roles require emotional intelligence, people engagement and the ability to relate to individuals in a way they find meaningful. Coaching requires getting to know people, listening, caring, understanding their emotional needs and helping them grow.
Hiring smart. Hiring mistakes are costly, time consuming and create quality and financial-control risks for small businesses. In my research, many entrepreneurs hired too quickly. They often looked for functional or technical experience instead of looking for someone with the right competencies who also fit the company culture. To make better hiring decisions, hire against a competencies and cultural scorecard; conduct multiple interviews; have multiple people interview prospects; hire on a trial basis; establish mentors for new employees; develop a good on-boarding process; and encourage good employees to make hiring referrals.
Managing cash flow. Many times entrepreneurs get overly engaged in the joy of growth and lose sight of the need to manage cash on a daily basis. Cash flow management is critical because growth often requires investments in people, technology and supplies ahead of receiving cash from customers.
Entrepreneurs have to understand that they may not be able to afford to grow as quickly as the market would allow. The amount of cash available for investment can limit growth, especially in today economy when credit it tight. And finally, remember to cautiously manage your checkbooks, credit cards and online accounts. If you decide to delegate this task, choose the employee you trust the most and set prescribed monetary limits. Check your payments and accounts daily, because fraud does occur.
Spending too much time putting out fires. A high-growth environment is hectic. Entrepreneurs can easily spend their days putting out fires. Growth requires planning and often calls for new processes and priorities. Finding time to manage growth is challenging. Entrepreneurs in my study found it helpful to get away from their businesses for short periods of time to think and plan.
Creating a high-performance family. Entrepreneurs often struggle with creating a high-performance family or team environment. The challenge, of course, arises when someone isn t meeting expectations and needs to be terminated. When you let someone go who is well liked, morale issues often arise. Likewise, letting a poor performer stay also can impact morale. To create a family culture and encourage high performance, establish clear job expectations, a transparent and frequent feedback process and opportunities for employees to improve or to step into another role where they are more likely to be successful.
Upgrading never ends. The people, processes, structure and controls needed to manage a business with $1 million of revenue generally do not work for a business with $10 million in revenue. Growth means continual change. Inflection points for the companies I ve studied occurred frequently when they expanded to 10, 25, 50 and 100 employees. Growing a business requires constant learning and improvement. It should a strategic decision made only after the associated risks have been assessed.
Instead of focusing on growth for growth sake, base your goals on ways to improve your business. When you do this, you will be able to meet the challenges of business growth with success.
Edward D. Hess is a professor of business administration and Batten Executive-in-Residence at the Darden School of Business at the University of Virginia. He is the author of nine books, including the recently published “Growing an Entrepreneurial Business: Concepts & Cases” and “Smart Growth: Building an Enduring Business by Managing the Risks of Growth,” which was named a 2010 Top 25 Business Book for Business Owners by Inc. magazine.