Scoring with “Hockey Stick” Growth

Make sure you and your company are prepared for runaway success.

Most entrepreneurs would love to see “hockey stick” growth. However, rapid growth opens up a Pandora’s box of issues that need to be addressed if you are to be successful.

I have experienced annual growth approaching 100 percent in a manufacturing business I owned, and have consulted with companies that have exceeded 200 percent growth. Through these experiences I have identified three major areas that need serious attention to harness growth.

Is Growth Sustainable?

First, what are the real reasons for your growth? Is it one new big customer, a new product, better marketing/sales efforts or competitor problems? You need to discern whether your revenue growth is sustainable or whether you are experiencing a “one hit wonder.”

You must properly evaluate the long-term stability of not only your revenue growth, but also the potential to maintain margin.

Are Your Resources Scalable?

Assuming no fatal flaw in the revenue/profit ramp, the second critical area involves preparation for rapid growth. You will need the right people, processes and financial resources. Significantly increasing workforce over a short period of time has the potential to damage a positive corporate culture.

How about your processes and technical infrastructure? You will need to make sure your customer service functions and resources can scale to handle greatly increased volume. The ability to adapt and train new hires to handle the work will be critical to maintaining customer satisfaction.

The need for additional financial resources may be critical at this point too. Your increasing inventory and receivables may present cash flow problems. Having the right banking relationship to allow for expansion can make or break continued expansion.

Can You Handle the Growth?

The third and final issue involves the long-term implications of “hockey stick” growth. Can you sleep at night with the additional debt and ever-demanding personal guarantees? You may need external equity to keep up. Are you ready to take on equity partners?

The revenue side of the business may grow but profit doesn’t necessarily keep pace. One business owner said, “I made almost as much money when I was one-third the size with one-tenth the hassle.” You just may not have as much fun as you did when your business was smaller.

Are You Planning Now?

Rapid growth can be a great thing if a company plans and reacts to:

  • Understanding what is driving the growth and making sure it is sustainable before making long-term strategic decisions
  • Realizing the changes to the company’s human resources, processes/technology and financial resources that will be needed to sustain growth
  • Understanding and agreeing with the long-term implications that are involved in a rapid-growth scenario.

Being caught in a growth whirlwind is most often a fantastic opportunity, however, taking the time to plan for or properly react to the above issues will help enhance your long-term success.

Dave Raden