Managing a company through fast growth isn't easy. Entrepreneurs who hunger to hit the $100 million mark after reaching their first $10 million in sales are often overpowered by both internal and external obstacles. What seemed like a natural progression turns into an insurmountable summit. Some give up and decide to stay where they are. Others have the desire and stamina but can't let go of control and make room for the necessary additions to their staffs. And they all face threats from external obstacles like economic downturns, industry realignments and shifting customer needs.
But companies do make it. AT&T, Microsoft, Cisco and the like weren't always revenue behemoths. Somewhere along the line, they made the decisions and changes that took them to the top. So how can you join the ranks of these superstars?
Start with this inarguable notion: During the growth from $10 million to $100 million, you will give up control-at least some of it. Think "professional management." The reason is simple: Growing tenfold usually takes outside capital-lots of it. Many companies go public or bring in investors to get capital, so the founder has to lose a percentage of ownership. Some make it through and continue to grow. Most do not. According to the growth consulting practice at Deloitte & Touche, the average sales growth rate for all companies, public and private, with less than $100 million in sales is flat to negative.
So how do you beat those odds? While there is no one single factor that explains the success of companies that have grown to $100 million, certain themes recur. If your goals for revenue growth are in the stratosphere, take note:
1. Hire Good People
Owners of $100 million companies invariably point to the great people they've hired-specifically, the professional management teams they've surrounded themselves with and given partial control of their businesses to.
Ralph Rubio and his father, Ray, started Rubio's Restaurants in 1983. By 1994, they had reached $10 million in sales with 13 restaurants in San Diego and two in Orange County, California. Aside from Rubio and his dad, the business also employed his brothers and sisters. "It was a nice family business," explains Rubio, 45, president and CEO.
But they made the decision to grow that year, and they needed professional management to pull it off. The new COO came from a long career at Taco Bell, the CFO came from Carl's Jr., and the new vice president of product marketing from Food-maker (now Jack in the Box). "I know the key to success is to surround myself with great people to free me to do what I do best [which is advertising and marketing]," says Rubio. Rubio's Restaurants now number more than 120 and extend throughout the West. The company expects to cross the $100 million mark in sales in the 2000 fiscal year.
Debbi Milner, president and CEO of Long Island City, New York-based Jade Systems Corp., underscores the philosophy of delegation. She and her husband, John (currently COO and CFO), 41, opened the doors of their IT solutions company in 1993. They ended that first year with sales of $14 million. "Until this year, we existed on four hours of sleep a night," says Milner, 42. "Now that we have a senior management staff, I've cut my hours back." Cutting back for Milner means stopping after a 10-hour day . . . and still hitting $100 million in sales.
Experts say the transition to professional management is the most significant factor in a company's "coming of age." Thomas L. Doorley III consults with growth companies as a partner at Deloitte & Touche. Doorley's practice tracks the top growth companies in the world and uses the research to counsel companies on practices and beliefs that sustain long-term, value-creating growth. As Doorley explains: "When a company is little, they can trade on that fact. They can attract good people by describing their intimate culture. A company comes of age when the founders no longer have their hands on every aspect of the company-when they have to rely on secondhand information."
2. Then Let Them Work
Once entrepreneurs hire new managers, they must hand over the reins to the new team. "I used to micromanage," confesses Rubio. "I had to learn to delegate, to give people around me the space to succeed or fail on their own merits. And I had to change fast because our business was changing fast."
Judi Paul, co-founder and chair of Renaissance Learning Inc., agrees. "To build an organization, you have to turn things over to your people and let them do their jobs," she says. "I don't have many talents, but I can recognize talent. That way, those around me make me look good."
Paul's Wisconsin Rapids, Wisconsin, company sells software-based learning information systems to teachers of grades K through 12. When she founded the company in 1986, she filled orders from her kitchen table. By 1995, Renaissance Learning crossed $10 million in sales; this year, it will top $100 million.
Get the Green
Fast growth usually means access to capital. Success in finding and deploying that capital is an important step in a company's growth. A public stock offering can often finance that growth. With public shareholders, however, entrepreneurs take on new challenges.
At Stericycle Inc., a leading provider of medical waste management services, Mark Miller's early investors aligned with the company's long-term growth plans. "Our team of employees, management and investors all focused on our specific mission, and that was to be the leading company in [our] industry. To do that, we all had to view our path as a marathon, not a sprint," says Miller, 45. Still, the path was steep: from $2 million in 1992 revenue to $132 million in 1999.
"We sought capital from the public markets in 1996 because we saw the momentum toward consolidation in the industry," says Miller. With capital raised from the public offering on Nasdaq, and a publicly traded stock as currency, Stericycle has acquired 46 companies. In 1999, they bought their largest single competitor, the medical waste division of Browning Ferris Industries Inc., for more than $400 million.
At first, Renaissance Learning grew with internal funds, the company having been profitable from the start. Then in 1997, Paul and her husband, Terry (co-founder and the company's vice chair), decided to take the company public, allowing them to give employees stock options, gain greater visibility and have currency for future acquisitions. The move raised $47 million. But Paul says going public on Nasdaq made the biggest difference in how she managed her company. "Being a public company forces good discipline," she says. "But last December, even though we had a big earnings increase, it was less than analysts' expectations, and our stock decreased. I thought about all the people I know who own our stock. But we learned, and we're always going to strive to stick to our mission and think long-term."
Rubio sought outside capital at the $10 million stage. "We talked with Jack Goodall at Jack in the Box and John Creed at Chart House restaurants for advice," says Rubio. "We got a sense of what [getting capital would] entail with franchising or venture capital."
Rubio decided to look for venture capital and raised $3.5 million through Rosewood Capital in 1995. "Things really accelerated then," Rubio says. "Instead of opening two to three stores a year, we were opening five to six, and then 10 a year." Rubio's went public last year, raising $33 million for national expansion. He concedes, "Rubio's is a very complex business now."
4. Know Your Customer
Paul's product battled other reading management programs-IBM's Right to Read, Broderbund and The Learning Company, to name a few-and is now bigger than all of them. One difference between Paul's company and the rest is that Renaissance Learning markets directly to educators. "Since we're on the phone with them, we know the customer who's going to use the product," she says. "Most others go through distributors and never interact with customers. If you work in an office and you have a phone and you can go to the bathroom when you want, then you don't understand what it's like to be a teacher."
Contact with customers is a key to growth at Jade Systems, too. "We've been characterized as having put the human touch on automation," says Milner. "Our clients can get the same computer equipment somewhere else, but at Jade, customers can talk to trained computer consultants [about] their needs."
5. Develop New Products and Markets
After a company takes off with its original product, that early surge typically starts to fade. The original product requires extensive change, or a new technology emerges to make the original product obsolete. At this stage, it's crucial for the entrepreneur to develop additional products and seek new markets for the original one. The problem is, the company becomes more complicated with the changes.
Over the past three years, Renaissance Learning has spent plenty on product development, introducing upgrades to its original products. "We keep our customers," says Paul. "Some have used our products for 10 years."
6. Listen to Advisors
Rubio says one of the keys to his success is a great board of directors. "I listen to them; I'm constantly on the phone with them, and they're critical," he says. "If I make a mistake, they let me know. The more innovative thinking you can surround yourself with, the more successful you'll be."
Doorley sees relying on advisors as a common quality of companies that sustain high growth rates. "The entrepreneur needs to be able to draw on a savvy, competent set of advisors," he says, "people who have been there before."
7. Plan for More Growth
Entrepreneurs intent on high growth constantly think about what their companies will be like at the next stage. "When they have $10 million in sales, they're thinking about what it will look like with $50 million in sales," says Doorley. "And then they ask, 'What do we need to do today to get there?'"
Milner's company went through that process in 1998, at the $50 million mark. Milner had to rethink policies and procedures. People had inherited responsibilities they didn't need to take on. When the jobs got redefined, efficiency improved. "If you look at our numbers that year, we didn't grow much in revenue, but we had a huge jump in profitability," says Milner. "We learned that as we develop procedures, we have to ask whether those policies hold up to change."
Rubio sees his company's next phase as national expansion: "I see us at 1,000 restaurants at least, though not in the next few years. For that, I need to bring in even more professional management."
Miller, Milner, Paul and Rubio exemplify the characteristics necessary for companies to grow, says Doorley. In addition to thinking ahead and planning for growth, entrepreneurs have to be ready to be bigger. Says Doorley, "For growth companies to continue to grow, the management has to make scale their friend."
Heading for the Exits
Their work done, it's on to the next success story.
Not all entrepreneurs stay around when the companies they found hit it big. "When the business becomes larger and more complicated, even bureaucratic, it's not fun anymore. Entrepreneurs who feel that way walk away," says Thomas L. Doorley III of Deloitte & Touche. "They say to themselves, 'This is not the company I wanted.'"
Mark Kvamme, 39, has been there. Kvamme and two co-founders built the integrated marketing company CKS Group into a $150 million company. When they merged CKS Group with Internet service company USWeb Corp., the move added another $100 million in assets. "There were more employees, and there was a larger executive staff. At each stage, we lost people because the company got big," Kvamme says. "Some like the small, intimate groups."
Kvamme was one of those people. Less than one year after the merger, he relinquished his spot as CEO at USWeb/CKS and became chair. "Right then I was on the board of Connectify, a new company run by two of my old buddies," remembers Kvamme. "It was very much like the early days of CKS, when we were three guys trying to do something new."
As a partner at VC firm Sequoia Capital, Kvamme stays close to his entrepreneurial roots by helping fledgling companies find capital and by offering those companies support and advice through various board memberships. "I couldn't be CEO [of USWeb/CKS] and be on lots of boards of small companies," he says. "I'm having more fun helping young companies [become] large companies."
Think and Grow Big
The 10 essential steps to creating a high-growth company
1. Believe deeply that growth drives value creation.
2. Articulate a growth vision and embed it throughout the organization.
3. Link growth performance to rewards and recognition.
4. Create a valuable formula as a platform for long-term growth.
5. Manage the valuable formula across the growth cycle.
6. Globalize the valuable formula; maintain integrity and modify locally.
7. Identify and nurture all growth-supporting processes.
8. Leverage two key strategic weapons-innovation and alliances-to exploit valuable formulas.
9. Benchmark growth foundations vs. the "best of the best," and aim to beat them.
10. Design and implement initiatives to align foundations.
Source: Thomas L. Doorley III of Deloitte & Touche
Cynthia Harrington, a freelance writer in Austin, Texas, writes about business for a variety of publications, including Bloomberg Wealth Manager and Senior magazines.