No-one succeeds in isolation which is why high-growth companies need access to a clear network of support, encouragement and advice. It’s frustrating when you see that a fantastic business with huge potential has faltered in that journey from toddler to titan because management lacked that crucial bit of experience, or didn’t quite know where to turn in order to get the finances right.
It is a risk for the founder of a successful private company, which provides a secure and comfortable lifestyle, to raise the stakes and go for high growth. Here are five of the most common barriers which need to be overcome:
1) Working capital and finance
Richard Barley, Director of Deal Origination at private equity firm LDC, comments: “You don’t want to be overtrading, especially as a business starts to grow quickly. In past recessions, what’s been found is that as economic conditions improve there is a spike of businesses going under because of a lack of working capital.”
It’s easy to be overwhelmed by success. David Soskin, Chairman of SEO specialist Smart Traffic, says: “If sales appear to be going up, then everyone is feeling good and that is a danger because you have to be paranoid when sales are rising quickly. You have to watch your finances even more closely than you would in a company that’s growing stably as obviously there are huge implications on cashflow and, in many cases, the quality of the debtors.”
As important as it is for a growing company to remain agile, it’s easy for CEOs to become distracted and dazzled by opportunities. “It’s tremendously challenging for SMEs to turn down business and this is why overtrading is such a problem,” says John Williams, Head of the Breakthrough programme at Santander.
Terry Stannard, Chairman of interior furnishings group Walker Greenbank, says: “If you’re in a start-up phase and you’ve got some initial funding, even if that’s pretty small, the key thing is to plan ahead with cash in mind. You don’t want to get carried away by all the opportunities… as you need to understand that when that first round of funding is exhausted, you must have a pretty good story to attract some more.”
2) Listening to the customer
Customer-centricity should be a priority for any business, but early-stage companies can be naïve about how vital it is to interact with customers and shape innovation accordingly.
Jay Patel, CEO of mobile data provider IMImobile, says: “The single biggest danger I’ve seen is that people get preoccupied with a product rather than focusing laser-like on what the customer wants. It is something that needs to be watched as the customer needs change and you will never get it right by producing a product in the abstract.”
3) Evolving management & culture
For many CEOs, this is the number one challenge because as a company shifts through the various stages of growth, the skills and expertise required to make the business successful will be different. David says: “The faster a company grows, the more pressure it puts on the top team. There are some people who thrive in a very demanding environment – others don’t.”
Henri Winand, CEO of fuel cell business Intelligent Energy, comments: “When I came in, I set the expectation that every 12 to 18 months we would have a major organisational change. You need to be able to work out how to execute that without breaking the business, because if you change too quickly or too slowly it can [cause problems].
“But you have to constantly think where you are going to be in two years’ time and the reason for that is because any change we implement can take between 12 to 18 months to stick, and then a few more months to basically operate and ripple through the business.”
This is where the CEO and senior management team earn their stripes (and the introduction of experienced non-executives can add significant value) as they address conflict and tension within a changing business. Maria Pinelli, Global Vice Chair for Strategic Growth Markets at professional services firm Ernst & Young, says: “You start out as an entrepreneurial, innovative, fast growth company and you want to sustain that growth, but what’s difficult is that you need to do that while building infrastructure, systems, processes and controls.”
4) The case for partnerships
Joining forces with another company may have its dangers, but it can be an effective way to gain new business. Rob Wirszycz, Non-executive Chairman at technology consultancy Portal, comments: “You’ve got to deconstruct your routes to market through all stages of the buying and selling cycle, and you’ll then be able to work out where you may be able to benefit from a partnership.”
Bill Payne, General Manager of Customer Experience and Industries at IBM, says: “Many business leaders have a sales strategy that overlooks the opportunity to use partners as an indirect sales channel. It’s easy to be overly focused on organic growth from your own direct sales team, but young dynamic businesses cannot afford the luxury of time to grow and so using a partner channel becomes second nature to them. In particular, SMEs have a significant opportunity to expand their selling if they understand how to sell through a larger enterprise or specialist partner.”
5) International expansion
Headaches and heartbreak, that’s what international expansion can bring to a business if done in haste. The added cost, bureaucracy and problems around staff recruitment can be a massive drain on what domestically may be a very successful business.
Terry says: “It’s usually better to establish the business profitably in the UK and start to properly do due diligence and find out the opportunities overseas in terms of the best model for expanding, whether it be agents; distributors; joint ventures; acquisitions – for the very biggest companies; where your priority countries are; what product is likely to succeed; and whereabouts the competition is not so entrenched. But all of that needs to be done at the appropriate stage of growth.”
There has to be significant commitment and planning. Steve Jones, CEO of pharmaceutical company Special Products, says that attention must be given to recruitment and that, although an international strategy is often necessary, you can’t underestimate the time and investment it requires, along with the knowledge that there is no guarantee of success. “It always takes longer than you think it’s going to, so if you’re in any way half-hearted you’ll do your profit lines all kinds of damage.”
However, an international strategy, executed properly, will take a business to the next level. John says: “Fast growth businesses are obviously not all international businesses, but they should be thinking internationally, either in terms of their own growth outwardly or a consciousness that international competitors will be entering this market.”
There will be those who scoff at the idea of year-on-year double-digit growth presenting a “problem”. But it is necessary to have an eco-system whereby real entrepreneurs feel confident about maximising the potential of their business, so they can go on to conduct an IPO, find backing from private equity or some other heavyweight private investors.
Any attempt to back ambitious businesses should be welcomed, such as the recent move by the London Stock Exchange to bring in a High Growth Segment which will help niche companies wishing to transition to the Main Market. “It’s part of a longer term and wider dialogue about how to make equity aspirational for investors and management teams again,” says Marcus Stuttard, Head of UK Primary Markets at the London Stock Exchange.
Whatever the path taken, it’s all about ensuring businesses don’t lose momentum. John says: “If there is a single biggest barrier to growth, it is finding a willingness within the management team to drive for growth as opposed to settling for business as usual.”
And who wants that?
Certainly not Henri at Intelligent Energy: “Without a shadow of a doubt, this is going to be a huge business. The reason for that is we have excellent technology and it is proprietary. This, combined with the demand for [energy] efficiency… all points to our technology being a significant player.”
I hope to see you soon.