With spring right around the corner (hint, hint, Mother Nature), it’s a perfect time to talk about growth and growth strategies. Think about a seed, buried under 10 feet of snow and ice (again, Mother Nature, come on). Under the right conditions, it germinates and sprouts. With proper sunlight, nutrition, and protection from mowers and trimmers, it can thrive.
That’s what we want to consider now: the conditions under which the seed’s growing. Is it in a garden? A nursery? A hothouse? What type of growth are we dealing with, and how does that inform how we support it? In business, it’s essential to ask the same question so we can plan to facilitate and nurture healthy growth.
Why the Type of Growth You’re Experiencing Matters
One of the keys to success is understanding what type of growth a business is undergoing and planning to support it properly. Let’s talk a bit about a few different ways companies grow:
The Growth: Organic
Here’s an example: a company is growing by 20 percent across the board. As it does, it receives more contracts and generates more revenue. The owner or CEO hires more employees. The business is growing internally, rather than from mergers, acquisitions, or joint ventures. This process happens, or should, very gradually, so it doesn’t outpace the company’s ability to handle and manage new growth.
The Growing Pains: Evaluating and Upgrading Staff
The more gradual nature of organic growth makes it a little (emphasis on little!) easier to deal with, but even here growing pains can strike owners and leaders. They’re eventually going to hit a point at which they have to examine their staff and hierarchy and ask, “Does this still work? Do I need to add another layer?” Sometimes, key members can step up; other times, they cannot.
There is always an inflection point in growing companies where they need to evaluate whether they have the right people doing the right jobs. They may need to add an operations VP, for instance, when they’ve had an operations manager from day one.
Another area that often needs upgrading is the finance team: as companies add more product, more clients or customers, or more geographical reach, they become exponentially more complex and their needs extend beyond the parameters of the bookkeeper’s role.
Growing businesses need higher-level, sophisticated financial advice and guidance. A CFO can oversee the bookkeeper, who is mainly a transaction person, and provide strategic advice on projections, pricing, and sustaining healthy growth and profitability.
The Growth: Landing a large contract
Another type of growth is common among companies who receive large government contracts. Call it a growth spurt, if you like. Say there’s a successful $2 – $3 million company. The next thing they know, they’ve landed a $25 million contract. It’s like a dog that chased the car – and then caught it. Now what!
The Growing Pains: Figuring Out How to Scale Up, and Fast
The company has to deal with tremendous – and rapid – growth, and they are going to require significant high-level advisory to help them figure out how to scale up. The trick here is to ensure that they have the right processes in place before the contract begins and they start providing services.
Planning is critical, and CEOs and their management teams need to ask themselves: “What kind of staffing do we need to pull this off? What kind of financing are we going to need?” If they’re going from$2 million to $25 million, they’re going to need some serious dry power! How are they going to secure that funding?
A CFO can work with the CEO and his or her team to answer these questions and put the proper processes in place to help them scale up and meet the conditions of their contract successfully.
The Growth: Acquisition
This type of growth is sometimes referred to as “inorganic.” That is, the company does not grow internally as our first company did, but expands by acquiring existing external businesses. Like the government contract scenario, acquisitions spur significant, and rapid, growth.
The Growing Pains: Prior Planning
A great deal of analysis has to be done to determine if a company should even acquire a new business. Assuming it is the right decision, the company needs to carefully examine the businesses as separate entities and as a single organization. What does integration look like? Are there positions that will have to be eliminated because they’re now redundant? Will positions have to be created or facilities expanded?
Bringing in CFO help before an acquisition decision is made can help companies fully analyze if the move is a solid one for their future and ensure that, if they do acquire a new business, it is integrated successfully – and profitably.
Planning is an integral component in all types of growth, but it is particularly critical in the latter two we mentioned. Growing a company that fast with no plan is playing with fire.
How you grow directly informs the strategies and steps you need to take to ensure your company remains strong and healthy. But no matter what type of growth your company is dealing with, proper planning and the help of high-level experienced financial professionals can help you create the conditions necessary for success.