Many startups, across many entrepreneurial ecosystems, fit the profile of a “small business” due to factors such as a low success rate, lean operating structures, and constrained resources. As we all know (thanks to online periodicals such as TechCrunch), a number of these “small businesses” will grow and scale as consumer demand for their products and services increases over time. Additionally, due to talented management teams, market shifts, or innovative solutions, a number of this high-growth subset will experience a level of demand that stands to position them for the sustained level of growth that may provide them with the visibility and resources necessary to transition from promising startup to industry disruptor. Growth of this nature may place undue strain on companies whose infrastructures are not poised to handle a greatly elevated level of demand. It therefore becomes necessary that organizations on the verge of such success have the expertise and foresight necessary to resource growth, manage infrastructural change, and develop sustainable systems by which to measure the performance of their initiatives in the long term.
When organizations experience a high level of demand that forces them to contemplate growth, bolstering the internal capabilities that lead to meeting this demand often becomes an early priority. The need for functions such as User Success, Account Management, and Project Management, for example, scale with client demand and may therefore be strained by an unplanned influx of clientele. While expanding departments such as these is requisite to delivering quality services to customers, it does require capital. The question of when to deploy this capital can be a difficult one to answer, however, and can often entail “pro-active spending”, or the idea of hiring ahead of revenue. When considering such decisions, it is important that organizations ask themselves two key questions: given that incoming consumer demand does not always equate to immediate revenue, where can we find the funding necessary to meet the growth that we expect? Additionally, how long can we expect this growth to continue? Answering these questions will lead to the conclusions regarding the extent to which expansion should be considered, how much capital will be required to finance growth, and when expansion should be considered across all relevant departments, given projected demand.
While increased demand can require growth, it can also be very telling as to which parts of an organization require an overhaul with regards to quality. Given the fast pace and daily uncertainty of startup life, many nascent organizations are forced to accomplish tasks, implement processes, and even develop organizational structures that, while accommodating to short-term needs, may not be engineered for long-term sustainability. Thus, many organizations poised for periods of heightened growth find themselves needing to re-structure existing processes to ensure scalability[1]. Inefficient sales processes, overly broad decision rights, and unclear chains of command, while not overly detrimental to small teams of early-stage operations, can be crippling to scaling organizations and often lead to costly inefficiencies. We recently worked with a family business that had experienced exponential growth in recent years and had come to us with the desire to add capacity to its operating structure. This request came as a result of the strain imposed on the company by recent growth, and the executive team felt that increasing headcount and adding roles would provide the bandwidth necessary to manage enhanced demand. During our work with this client, however, we found numerous processes that were “broken”. With this in mind, we set about re-engineering workflow, constructing job descriptions and decision rights, rebuilding the organization’s sales processes and compensation structure, and implementing a company-wide ERP to ensure that tasks were completed efficiently. Without adding headcount, we arrived at a solution that would not only effective manage the company’s current client base, but also accommodate sales of 180% their current output.
The company’s executive team saw the value in our recommendations and was preparing to implement them. When considering the practical implications of these new processes, however, a new question emerged: how would efficiency be monitored moving forward, and how would the necessary reference material for this assessment be gathered? Data management, while crucial for long-term organizational success, is often neglected by execution-focused startups with limited manpower, and this client was no exception. Measuring progress against long-term term plans, monitoring the performance of newly hired employees and growing teams (see paragraph two), and determining when and where to deploy resources (see paragraph three), however, will all require close monitoring of data sets. Determining what data will be collected, how it will be monitored, and who’s responsibility it is to do so, then, must become a priority to businesses seeking to maintain a healthy trajectory of growth. In the case of this client, a lack of such processes and expertise necessitated the construction of a comprehensive system of data management as well as the subsequent changes to many job descriptions that would be necessary for any further operational improvements to be effective.
While the specific challenges that an organization may face when preparing for rapid expansion will vary from one case to the next, we at EMH do tend to see that these challenges tend to fall into one of these three aforementioned buckets of issues. By devoting, or outsourcing, the bandwidth necessary to manage these tasks, as well as by pro-actively considering such issues early on, founding teams can ensure that they are effectively poised to capitalize on the growth opportunities that are presented to them.
Author Andrew Foley is an EMH Strategy Consultant and 2014 Venture for America Fellow.
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