Tuesday, July 29, 2014

The Good Problem (is Still a Problem)

I'm back! (I think...)

Since my last "real" blog post in March 4, 2012 (Pushing Past the Growth Plateau), I've been dealing with the "good problem" of rapid growth.  For Silicon Valley startups, these are the good times, and for my company - which provides services to startups - it's been challenging to keep up!  In the last 18 months, we've doubled in size, launched an entirely new line of marketing services, and entered a new customer segment.  It's a good problem to have, as everyone likes to remind me and which I wholeheartedly agree.

But it's still a problem!

How can growth be a problem?
  • Growth consumes cash:  In a seminar I give to entrepreneurs on cash management, one of the more eye opening exercises is where I show how fast growth can drive them straight into bankruptcy even when the P&L says they're turning a profit.  (I also show them simple steps they can take to reduce this.)
  • Growth strains systems:  This in turn, leads to service problems, which can quickly stall growth.  Memory is no longer good enough to track the exploding detail.  Processes have to be defined to ensure all the bases are covered, in the proper order. 
  • Growth strains your people:  And hiring actually increases the strain on your people.  New hires have to be trained and fixing the inevitable newbie mistakes creates more work.  Relationships shift and confusion increases as job duties are shifted away from existing staff to new people.
  • Growth can lead you off track:  New customers can place new demands on the business.  It's easy to drift into new products and services in the name of customer service.  Whether this is positive or negative depends on how well they align with the startup's vision.  Not all revenue is good revenue!
So what are the keys to overcoming this?
  • ADD:  Automate, Diversify, Delegate.  See my previous post, Pushing Past the Growth Plateau.
  • Focus on Fit:  The first step is to acknowledge that not all revenue is good revenue.  So what is good revenue?  It's revenue which your company is designed to deliver and comes from adding new customers that meet your target customer profile, which means you have to know what your ideal customer looks like.  While this sounds simple, what makes it challenging is recognizing when off-target revenue represents an unanticipated, lucrative opportunity or is merely off-target and a drain on resources.  I'll have more to say about fit in a future post.
Stay tuned!