Managing ‘Goldilocks’ Growth: Avoiding the Traps of Expanding Too Quickly or Too Slowly
by Sherron Lumley.
When Goldilocks of fairytale fame first launched Three Bears, LLC, the small start-up company was a long ways from where she wanted it. “Oh no, this business is too small!,” she complained. Right away she set about making things happen, working day and night to build the business of her dreams. However, after a period of rapid growth and expansion, she was struggling to meet customer demands, sacrificing quality, scrambling to fill vacancies and feeling stressed out by finance payments on the loans she took during her growth-at-any-cost mania. “Oh no,” she found herself saying one day, “this company is too big!”
Managing the pace of growth for your small business may feel like the proverbial Goldilocks tale, an eternal struggle to find just the right size for your business that avoids the pitfalls of being either too big or too small.
The scenic route
Brian Easter launched Nebo, an Atlanta-based interactive marketing agency with his brother Adam Harrell, in early 2004. For Easter, coming from the global telecommunications field, his previous experience within a large multinational was not a fit with his personal values. The company he pictured as his ideal was one that was smaller, where human relationships would be seen as important.
The business model he created wasn’t about maximizing profits. “It was about doing great work,” says Easter. This emphasis on being a small company with strong values and a focus on doing good work led to dozens of marketing awards and a strong client base with steady growth of approximately 20 percent per year for the first seven years.
Then last year, the business grew 57 percent in net revenue, which brought up an unusual question for the brothers. “For our business, we asked, ‘Why do we need to grow?’ We don’t believe in taking a project for a paycheck,” says Easter, adding, “sometimes, no is more powerful than yes.” The decision to turn away some projects was a deliberate move to stop runaway growth while focusing on doing more high quality work with their best clients.
So what is the driving force for Nebo now, eight years after start-up? “One of the things I want to do is grow revenue without growing employees,” says Easter. “I want to focus on the people in the room, to raise their skill set and earning potential. I want them to grow in terms of salary and quality of work,” he says. This de facto curbing of growth by putting the brakes on hiring is one good strategy for keeping growth in check.
“We want to do great work and be professional, but we are also trying to defy gravity,” says Easter.
Many small business owners understand what those words mean. Defying gravity represents doing the seemingly impossible, such as maintaining high standards during periods of rapid growth and expansion. But the reality is, if defying gravity were really that easy, then everyone would do it. For some small businesses, conquering growth is more like learning to ride a bike, if you don’t pedal fast enough, the bike falls over and it’s try, try again.
This was the case at a marketing firm in a galaxy, far, far away—not really, just the suburbs of Chicago— where an altogether different approach did not work so well. “For my small business the struggle came in the form of having plenty of clients, but not enough workers,” says Ruth Ann Weisner, founder of Raw Marketing. “Within a few months of formation I realized I must hire help or there will be no chance for the company to grow,” she says.
However, in a rush to hire people to meet quickly growing demand, she took on staff with the wrong skill sets, hoping that with the proper training it would all somehow work out. “I went about it the wrong way,” she says, “after several months it was back to square one…lesson learned.”
Gathering a team
Philip Noftsinger is the Business Unit President for CBIZ Payroll, Inc which provides professional business services to help clients manage their finances and employees. Noftsinger is responsible for creating CBIZ’s monthly employment index, which highlights small business employment trends and brings a deep understanding of small business growth (or lack of growth) and connected dangers.
Noftsinger’s experience with outsourced payroll and HR services for 5,000 clients gives him a unique perspective on the success or failure of small businesses. “I know for certain in the last three years, there is an increased ability to be more agile,” he explains. First, with regards to human resources, he sees a lot more 1099 professionals (e.g., contractors and freelancers) and more temporary workers. A fluctuating workforce means small businesses today are better able to meet changing demand than the small businesses of the past. Secondly, he sees small businesses embracing the idea that Main Street companies need lean production, looking at the cost structure of the labor and resources that go into their production process in the same way that large companies do.
Financing for growth—and when to say no to demand
“Small business owners, when they are first looking at growth, often it’s because they have a great product, and in that case, demand will outstrip capacity to produce,” Noftsinger says. “When demand is outpacing supply, for large companies that’s easier to deal with,” he adds. Small businesses, on the other hand, have to look at how much investment capital is available to meet demand and whether that money will come through debt financing or growth through profits. “Occasionally, a small business has to deny demand and walk away from sales,” he says.
Easter describes his financial strategy as conservative. He and his brother decided to fund the start-up of Nebo from personal savings and without the help of outside investors. “It was a reaction against the industry,” says Easter. “I’ve seen one of our competitors lose control of his company, recklessly taking investment dollars,” he explains.
Happily ever after
“It didn’t happen overnight,” says Easter. “There are no short cuts,” echoes Weisner.
When it’s time to expand your small business, consider the company culture you want, then set a deliberate pace for growth. Don’t be afraid to deny demand or spend the time and money to hire appropriately if you feel those strategies best fit your long-term plans. After all, it’s about finding the pace that’s just right for you.
Managing growth – first steps for small business owners
Create the company culture you want. Establish core values and a company mission.
Forecast for growth. Plan ahead for the next three years and revisit the plan often.
Maintain standards by setting a deliberate pace for growth.
Understand the ramifications of financing growth; know your cash flow position.
Say no to demand when necessary.