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In a business climate where quarterly results often dominate performance benchmarks—especially for public companies—it’s easy to fall into the mindset that growth trumps all. Easy, but not wise. Growth must be managed over the long term. Sometimes, that can mean sacrificing immediate returns for long-term results.
Bill Keith, founder and CEO of Perfect Bar, knows that through firsthand experience. “For many entrepreneurs, there is an incessant need for instant gratification,” he admits. “However, success often requires restraint, focus and the ability to say no—something that took years of running a business for me to master.”
That’s not to say growth isn’t important to Perfect Bar, which began making and marketing refrigerated nutrition bars 10 years ago. Perfect Bar started with three employees and distribution only through natural grocery stores. It grew by almost 1,000 percent over its first five years in business and by almost 900 percent over its second five years. Today, Perfect Bar has 140 employees, and its products are sold in more than 4,000 retail accounts nationwide, including warehouse clubs, supermarkets and convenience stores.
A key to its success has been carefully managed growth. For Perfect Bar, that has sometimes meant turning down new accounts when it didn’t have the resources in place to service them properly. Quality—of both product and customer service—is Perfect Bar’s key variable in managing growth and always will be, Keith says. “Quality extends far beyond sourcing and manufacturing. [Doing business] with an over-leveraged partner can quickly spell trouble for any growing brand. Building and maintaining quality business partnerships and relationships can be just as critical to sustaining healthy long-term growth,” he says.
Putting Long-Term Survival at Risk
There can be problems with a growth-at-any-cost mindset, says Craig Macy, CEO of Onstream, Inc., which provides technology to help OEM manufacturers develop intelligent products. A big one is that it can completely sacrifice longevity and survivability for the dubious prospect of a low-percentage, short-term lift. “And for a small company without access to capital, this can result in a cash constraint that can doom a company,” he warns.
Macy points out that one of the biggest problems with rapid growth is that the cost associated with scaling up to support it can persist in the face of a downturn, putting a company in a cash-stressed condition. Situations that should prompt a business to reconsider pursuit of rapid growth include the possibility of a decline in demand or a lack of sufficient cash reserves to cover costs during a downturn, he says.
Inability to attract and hire key employees can also be a stumbling block for growth companies, Macy adds. That’s especially true for companies looking for new hires with more experience than those already on staff. Hiring the right people can make the difference between success and failure in a rapid-growth environment, he notes, “so if conditions suggest this can’t be addressed, then it may make sense to slow down a bit.”
Sometimes, it makes sense to step off the fast track momentarily just to give team members a chance to recharge, as Keith did recently. “We held off on some new accounts we had planned to pursue, all in an effort to preserve our team’s longevity. We wanted to ensure we had everything in place, so that the success of these accounts did not come at the expense of our team.” Burn-out is a common occupational hazard among startups and fast-growth companies, and it can be costly. “You end up wearing down your most valuable resource in the process and spending time training new team members—which, ironically, puts the brakes on growth anyway,” he says.
Focus on Cost Control to Protect Profits
Macy acknowledges that restrained revenue growth—even when necessary to ensure longer-term success—may negatively affect profits. He suggests the best way to keep it from affecting profits is to reduce costs. “One way to attack this is to consider COGS (cost of goods sold) as it relates to specific lines of business and/or specific customers,” he says.
He offers the example of a business with many small clients, a few substantial midsized clients and one “gorilla” account. If your biggest client provides the most revenue but also has the highest associated costs, it might make sense to scale back there, even at the risk of making them temporarily unhappy. “Conversely, if there is more overhead in appealing to the mass small-customer base, that could be de-prioritized for a time to reduce costs,” he says.
Minimizing managed growth’s impact on profitability comes down to holding true to your thesis and sticking to the growth pattern that supports it, Keith says. “Trust your game plan and don’t divert from it. Faster growth will be right when the timing is right—when it fits within your growth plan.”Find more articles from this series here.