Startups are supposed to grow — fast. Yet in the race to gain customers and appease investors, growth can become an all-consuming obsession. A “growth at all costs” mindset may work early on, but at some point in your business’s evolution, prioritizing it over everything else will become a dangerous strategy. The reality is, companies that are constantly acquiring customers need teams and processes that are capable of handling increasingly complex challenges. If you can’t develop those teams and processes fast enough to meet the challenges, things inevitably start falling apart. And once growth accelerates, it’s extremely difficult to keep up.
Looking for Trouble
Every company is different, but there are a number of universal indicators that a business is scaling too fast. Sometimes, they’re subtle: Team members are burning out, outflow and profit margin ratios are off, or you gradually start missing certain success metrics. Other times, they’re obvious: You haven’t achieved consistent profitability, or you’re hiring despite losing money every quarter.
Most leaders can recognize the signs relatively early on. Whether they choose to acknowledge them and reverse course is a different story. Some do. In the early 2000s, Larry Page got rid of Google’s entire middle management staff, but quickly realized that one executive per 100 engineers wasn’t enough to handle Google’s astronomical growth. As you may know, Google made it.
But there are also countless examples of companies that didn’t. Maybe you haven’t heard of Crumb’s Bake Shop. It went public in 2011, with shares priced at $13, and closed its doors three years later. Zynga, developer of the once-uber-popular online game Farmville, decided to IPO in 2011 on a wave of millions of downloads. By 2013, it had lost two-thirds of its value.
To avoid the fate of these and other companies that grew too big too fast, keep the following principles in mind.
1. Your team is made up of people.
The key ingredient of every great company is great people. If you can get the founding team and your initial hires right, everything else tends to fall into place. But even if your founding team is made up of rock stars, hypergrowth can put immense pressure on a company, testing you in new ways. During this period, leadership must be sure to give all team members — from the earliest employees to the latest hires — one of the most powerful incentives in the business world: recognition. Recognize positive behavior when you see it, no matter how simple or expected. A stage of rapid growth is a defining period for your company, and it provides an opportunity for you to create a culture capable of withstanding adversity. Frequent, authentic and personalized recognition — whether in companywide meetings or privately via email or chat — makes employees feel their hard work isn’t taken for granted. If you prioritize employee recognition, you’ll be in good company. Many companies on the Fortune 100 Best Companies to Work For list have made it a focus. Hilton, for example, gives managers a recognition calendar that highlights 365 ways to thank employees throughout the year.
2. It’s possible to look too far ahead.
Your goals are ambitious, and your vision of the future undoubtedly plays a big role in driving you forward, but periods of high growth demand your full attention. Don’t just focus on where you hope to be in five years, or you’ll miss opportunities and needs that are right in front of you. Securing investor money, closing sales, investing in technology and identifying new hires and strategic partners are steps you can’t skip if you want long-term success.
Webvan, a grocery delivery startup, learned this lesson the hard way. The organization grew quickly and expanded its business before first seeing success with its business model. The result? It wasn’t able to cover the day-to-day costs needed to stay afloat and ended up filing for bankruptcy, laying off 2,000 employees and closing its doors.
Don’t let this be your fate. To avoid looking too far into the future, break up your long-term vision into short-term goals. Then, focus on one short-term goal at a time. Examine the data in front of you, and adjust your short-term goals accordingly, ensuring you don’t unintentionally skip key steps to scaling.
3. There’s a reason they call it a “good fit.”
Entering a rapid growth phase might feel like a victory, but it’s really just a starting point. The same mentality that got your business off the ground will be required each day that you scale. To maintain efficiency, you’ll need to focus on putting the right people in the right places at the right times. You might not mean to place employees in the wrong roles, but rapid growth can cause you to rush hiring decisions. To avoid this error, create a hiring schedule so you know what steps need to happen when.
Optimize your current team during those growth stages when capacity is high, but not quite high enough to warrant an additional salary. When you and your team are feeling the pressure of the daily grind, lean on technology to be more productive. For example, automotive manufacturer Discrete Parts used ThroughPut Inc.’s ELI platform to reallocate its skilled workers, resulting in a 25 percent reduction in defects and yielding $500,000 in annual savings. Even if your savings from team optimization are a fraction of that figure, it’s still extra cash to fund continued growth.
Your aim is to grow fast and keep growing, which means you have to keep doing the things that put you on your current trajectory. You’ll also have to tackle new problems in creative ways. Keep these principles in mind, and you won’t become a victim of your own success.