Don't be done in by success:
How to cope with rapid growth
By Salvatore Caputo • Bankrate.com

Businesses measure success by their growth, but you can have too much of a good thing.

"Rapid growth is one of the quickest ways to fail in small business," says Mark K. Weaver, professor of entrepreneurship and director of the University of Alabama's Small Business Institute in Tuscaloosa. "If you grow too fast, things screw up. There's no way to avoid it."

When Karen See started her business, she got a similar warning: "Success can be your downfall. You can implode."

She says now, "It was the best advice that I was given."

The proof is in her success. Abovo Marketing Group started its life in the basement of her Atlanta home in August 1997 with two employees.

They had one phone, and they would pass it around to one another when clients called. Strapped for cash and credit, they shopped for office furniture at estate sales and consignment shops.

Those days are gone, but See isn't pining for them. Last year, the company enjoyed 240 percent revenue growth, grossed $4.7 million and grew to 40 employees.

Abovo, which handles marketing, public relations and Web design for business-to-business Internet companies, is still growing and has a waiting list of clients hankering to get on board.

Learn to say no
That waiting list is not just an indicator of how well the company is doing, but it also points to one of the key reasons that Abovo has not sunk under the weight of its growth: The company is willing to say no to new business or to tell potential new clients that they'll have to wait their turn for service.

"Success to us is producing great quality work and having our clients love us," See says. She and her colleagues realized early that they could only serve a limited number of clients well: "We could be three times bigger, but we want to be really passionate about the work we do."

Many small businesses find it difficult to say no, and that's their downfall.

"Growth is not the goal, but rather sustainable growth -- growth we are capable of absorbing," says Weaver, who has been consulted by more than 600 businesses weighing expansion over the past 25 years. "'I can only do what I can do,' is a line that I preach to these firms. Trying to do more puts you into a death spiral."

Look growth in the eye
Before you take on more work, Weaver says, you need to seriously assess whether the growth represented by that work is worth the cost in real dollars and in customer and employee satisfaction.

That means looking growth in the eye and asking yourself some serious questions:

• How many extra employees will you need?
• How difficult would it be to find, hire and train new employees?
• Will your infrastructure -- space, workstations, etc.-- need expanding?
• Is outsourcing possible -- or desirable?
• Whether you do the work yourself or outsource it, how much time would you have to devote to overseeing the work to ensure its quality?

"When your quality goes down, customer satisfaction goes down and new orders become one-time orders," Weaver says. This situation hurts the company in the long term because it will be perceived as a low-quality business. "In the short term, it hurts your profitability because you have to spend X amount of time correcting those mistakes."

For new companies, the cost of correcting mistakes often means a further squeeze on profit margins that are tight to begin with. The unwary can find themselves actually losing money by taking on new work.

Expect staff stress
Extra work correcting mistakes can add to the stress faced by a staff that's also trying to adjust to changes the organization made to handle this new work. The strain can wreak havoc with retention of the most competent employees, whose dedication built the firm.

Keeping valued workers should be a business's top concern as it considers expansion, says Adam Kapel, an e-business strategy expert at Emerald Solutions Inc. The consulting firm based in Portland, Ore., knows growth firsthand: It went from $2.2 million gross revenues in its 1997 startup year to $34.7 million in 1999.

"It's easy to get a small group of hard-working people to drive toward startup business goals," he says. It's much tougher to keep them when herds of new employees show up.

At that point, long-time employees feel less invested in the company's success. "They have to believe that they're going to get part of that growth," Weaver says. "That's why stock options are so popular."

Encourage a shared vision
Stock options and other incentives are fine, but See says that retention at her company stems more from values that Abovo shares with its employees.

The first employees attracted to the firm were "people who were entrepreneurs at heart. They made their own thing happen and built this company themselves. They work as if they are running their own firms." Saying that these are some of her company's core values, See continues to seek these qualities in her new hires.

It works: Only one employee has resigned since the business started.

Businesses that establish and understand core values such as these have the best chance of managing their growth, Weaver says.

Know your strengths, limits
Although a business plan should be flexible enough to give a company room to maneuver in the rapidly changing marketplace, unchanging values provide the yardstick for decisions on how (and how much) to grow. A company that puts a value on service, for instance, is likely to decide "I can be a nice $1 million business by offering high-quality, high-touch customer service, so I won't try to become a $5 million business with poor service," he says.

Ultimately, Weaver says that managing rapid growth boils down to a few simple questions: "What is my goal? What is my objective for this firm in terms of size? In terms of time commitment?" Once you've answered these, you'll be good to grow.

Salvatore Caputo is a freelance writer based in Arizona
To comment on this story, please e-mail the Bankrate.com editors

-- Posted: April 7, 2000