Keeping growth under control – managing company growth

Jacquelyn Denalli

It’s a scene all too familiar to many businesses: The customer is irate. Everything that could have gone wrong with the order did go wrong. Desperately trying to salvage the account, the owner pleads: “Please bear with us. We’re just going through some growing pains. It won’t happen again.”

But it probably wfll happen again–and again–because many owners of growing companies don’t really understand what’s wrong. They can’t figure out why a once-successful business now routinely fails to deliver.

“Growing pains” are accepted by many as a natural part of a business’s upward progress. But when growth becomes painful, your business is sending you a signal that it has probably reached the point in its life cycle when failures occur easily. It’s the point when the company’s staff or operational structure– or both–can no longer measure up te the company’s rising demands, and the results are breakdowns in customer service and product quality.

At this point, you have three choices: Learn to manage business growth effectively, sell out, or let problems eat away at profits until you are forced to close down.

You presumably wouldn’t accept the latter two options, so you are left with the need to manage growth—an extremely difficult process for most small-business owners. The reason harks back to their motivation for going into business in the first place.

“A lot of people start their businesses not because they are real business people, and not because they care about going into business, but because their heart’s desire cannot be accomplished through other channels,” says Carey Stacy, president of Dialogos International Corp., a foreign-language service company based in Raleigh, N.C.

Fifteen years ago, Stacy was a Spanish teacher frustrated with the public-school and university systems. Denied the opportunity to use teaching methods she thought were most effective, she quit her job, opened a small office, and began teaching private students her way.

Today, with revenues exceeding $1 million and clients coming from all over the world, she says, “All I ever really wanted to do was be a good Spanish teacher, and I’ve not taught a class in the last eight or nine years.”

Stacy’s experience is a classic case of what consultant and author Michael Gerber calls a “technician suffering from an entrepreneurial seizure.” Gerber, founder and chief executive officer of Gerber Business Development Corp., in Petaluma, Catil., and author of the best-selling The E-Myth: Why Most Businesses Don’t Work and What To Do About It (Ballinger Publishing Co.), says too many people go into business believing that if they can do the work, they can successfully run a business that does that work.

But running a successful language service business requires more than top-notch teaching skills. Fortunately for Dialogos, Stacy evolved from being a technician to a true entrepreneur. Says Gerber: “Business development is crucial, and businesses that don’t do it are doomed to fail. High-growth businesses simply fail with a flourish.”

Recognizing Growing Pains

How do you know if growth is out of control in your business? Gerber says the signs reveal themselves in many ways: “Jobs don’t get delivered on time. Costs expand disproportionately to the actual time spent on the job. You find yourself plagued with any manner and form of chaotic events. More and more is being done, and less and less is being controlled.”

If this sounds familiar, stop what you’re doing, step away from your business, and analyze the organization from how it began to how it got where it is now. Then begin to develop a business that works as an integrated system.

“You have to stop and take a holistic view of the business,” Gerber advises. “Bring your top people into a session where you take the business apart functionally, financially, and organizationally, and put it back together from a systems perspective.”

Building Management Systems

When a company is dependent on one or a few key individuals, growth potential may be stunted, and the company may not survive if key individuals leave. A company structured around accomplishing essential tasks is better equipped to tap individual talent and survive the departure of any specific person.

Stacy says the best thing she ever did for herself and her business was to serve as the national president of the National Association of Women Business Owners (NAWBO). The extensive travel required by that position forced her to turn over daily operation of Dialogos to employees.

“Up until that point, I was a hands-on owner,” she says. “When I let go, we began to get jobs that we had lost before because they were plled up on my desk waiting for me to make a decision.” When her term as NAWBO president ended, she says, she “came back to a business that was bigger and better than the one I left–and I have never gone back to managing in the same way. Sometimes my employees make decisions I wouldn’t have made, but I’m taking more money to the bank than ever before.”

Without realizing it, Stacy created a management system that functions on its own, regardless of who is staffing it. This, Gerber says, is the foundation of a successful business.

Planning For Growth

Once you have a management system in place, it needs the direction imposed by budgeting and forecasting. These functions are critical for growing companies and should be done regularly and frequently. Meaningful forecasting not only lets you prepare for business growth but also helps you anticipate and even compensate for slow periods.

Ann Blakeley, president of Earth Resources Corp., an environmental consulting and contracting firm in Ocoee, Fla., holds weekly planning sessions for representatives from each department. In these meetings, every contract, lead, and proposal is ranked.

“Everything that exceeds a certain probability goes into the forecast log,” she explains. “We play out cash, staffing, and equipment requirements.” The company’s chief financial officer brings in a copy of the previous week’s model– created on a computer spreadsheet program-and each manager makes the necessary adjustments to update the forecast. By doing a “quick and dirty” evaluation weekly and a full forecast model twice a month, Blakeley can see–and correct–potential problems before they manifest themselves as poor service to the client.

Building an initial forecast model takes time, and early projections will probably not be especially accurate. In fact, few forecasts will ever be precisely on target, but at least they provide working guidelines.

“Unless you have something to base decisions on, you can’t plan,” Blakeley says. “If your business is going to increase 30 percent in the next six months, you’d better start negotiating with your bank today to get the additional cash you’ll need to fund that growth.”

It’s also important, she adds, to let your bankers know if you anticipate a dip in revenues. “Tell them you’re looking at a bad month, and why, and what you’re doing about it. Don’t let it be a shock.”

To get started with a planning model, do a month-by-month examination of the past year, looking at revenues, expenses, profits, marketing efforts, staffing fluctuations, and anything else that affects your business.

Once you understand where you’ve been, you can begin to move forward by plugging in the events you know will happen, and by considering what you think will happen. But develop the forecasts on logic, not dreams.

Involve your management team, and ask questions such as, “OK, this is what happened last month; what will be different next month?”

Finally, build accountability into your plans to make them more than a nuisance exercise. If you met your goals, great– but how and why? If you fell short in some areas and excelled in others, what happened? What can you do to make the good things better and correct the deficiencies?

“In our written business plan, we identify our strengths, opportunities, weaknesses, and problems, and we address them in the plan,” says Ronal Borgman, president of the Council on Education in Management, in Walnut Creek, Calif. The company’s key people are involved in developing the plan, and then they are held accountable for their performance projections.

Training Your Employees

Hiring good people is essential, but it’s just the beginning. Even good people can’t do their best without adequate direction and on-the-job training. Just remember, says Borgman, that “by the time you get five or 10 people, you are no longer the driving force in your company. Those five or 10 people are. You may still be the quarterback, but no quarterback ever won by himself, and neither will you.”

Staffing presents a special problem for Blakeley, because of the highly specialized work Earth Resources does, she says. “I can’t go out on the street and hire people who are trained to do our kind of work. I have to train them, and I have an incredible amount of time invested in people before they come up to speed.”

Hiring, however, is only part of the process, Blakeley says: “One of the biggest challenges when we’re adding staff quickly is communicating the values of our business to new employees. You have to not just train someone how to do their job, … you have to convey your corporate culture.

“When you fail to do that, you take people who are potentially very good employees and immediately turn them into medium employees, because they can’t meet your expectations if they don’t know what those expectations are.”

Borgman agrees. “I have made the mistake in feeling satisfied that I had done a good job in recruiting and selecting a key person, and then didn’t follow up sufficiently,” he says.

The Process Never Ends

So what happens after you’ve created a system to manage your growing business? Can you move into a “maintenance mode” and relax?

Absolutely not, says Blakeley. Growth management can’t stop just because things are going well.

“If things are going great, you need to know how to keep them that way,” Blakeley stresses. “What are you doing right? What can you do better? You can’t ever, ever get complacent.”

Jacquelyn Denalli is a business writer who lives in Orlando, Fla.

COPYRIGHT 1993 U.S. Chamber of Commerce

COPYRIGHT 2004 Gale Group

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