The Business of Growing: The
Top Nine Challenges of Growing an Entrepreneurial Business and How to Tackle
By Edward D. Hess
The hardest step entrepreneurs take is getting their start-up off the ground
once and for all. The second hardest step is growing it into the best
business it can be. What today's entrepreneurs and aspiring entrepreneurs
must remember, notes Professor Ed Hess, is that a lot can be learned from
the successful entrepreneurs who came before them. He provides advice on how
to navigate common growth challenges derived from the many successful
businesses he's studied.
For many, achieving the American Dream means taking control of their
destiny, quitting their 9 to 5, and opening the doors to their very own
business. These brave entrepreneurial souls have shaped American enterprise,
and today, they're playing the very important role of helping to drive the
nation's economic recovery. And if you're one of these brave souls - pouring
your blood, sweat, and tears into running your own business - Professor Ed
Hess stresses that there's no time for rest. Once you've got your start-up
off the ground, he says, the daunting task of growing your business to the
next level must begin.
"Growing a business presents a whole new group of challenges for
entrepreneurs," says Hess, a professor at the University of Virginia's
Darden Graduate School of Business. "The good news is that most businesses
experience the same or very similar challenges when it comes to growth.
There is no need for any entrepreneur to reinvent the ‘growth wheel.' You
just have to be willing to learn from those who grew before you."
With his own research and his new book, Hess aims to make the growth process
even easier to navigate for the nation's brave entrepreneurs. He recently
studied 54 high-growth entrepreneurial companies based in 23 different
states, all of which were designated as successful growth companies by
leading magazines or accounting firms. His research findings are the subject
of an MBA course he teaches at the Darden Graduate School of Business and
the subject of Growing an Entrepreneurial Business, which he wrote for
entrepreneurs and students.
The 54 companies in Hess's study operated product and service businesses,
had been in business on average 9.6 years, and had reached an average
revenue level of $60 million with the range being from $5 million to $350
million. Some of them, such as Eyebobs in Minneapolis, Trilogy Health
Services in Kentucky, Defender Direct in Indianapolis, SecureWorks in
Atlanta, and Mellace Family Brands in California, were well-known companies.
The research was supplemented with case studies of other successful
entrepreneurial growth companies like Room & Board in Minneapolis, C.R.
Barger & Sons in Tennessee, and Enchanting Travels in India.
"What I found was that these successful companies all faced very similar
challenges when it came to growing," says Hess. "But what sets them apart
from those companies that didn't survive or didn't reach the same level of
success is how they approached that growth.
The companies in my study understood that growth is change and change is
risky. Entrepreneurs who understand this and the challenges that come with
it are the ones with the best chances for successful growth."
Read on to learn more about the top nine growth challenges facing today's
Getting overwhelmed by growth. Growth is change. Growth requires more
processes, controls, and people. Too much growth too quickly can create
financial, quality, and reputational risks that if not properly managed can
lead to the demise of the business. Keeping tabs on all of these factors can
easily overwhelm business owners. "Growth is like Mother Nature," explains
Hess. "She can be good or she can wreak havoc with hurricanes, earthquakes,
and floods. To properly manage company growth, successful, experienced
entrepreneurs recommend the ‘gas pedal' approach - when you start to feel
overwhelmed, let up on the gas to allow processes, controls, and people to
Knowing when to say "no." Most successful start-ups have a plethora
of opportunities. The challenge is choosing the right ones. Good
opportunities are those that will enhance your company's strengths and
result in a compelling customer value proposition. "Opportunities that don't
fall into that category should be met with a ‘no, thank you,'" says Hess.
"The problem is that too many entrepreneurs never learn to say ‘NO!' In an
effort to get their business off the ground and keep it up and running, they
say ‘yes' to everything. They end up trying to do too much for too many,
which dilutes their focus and often the quality of their product or service.
Determining and having the discipline to maintain a narrow strategic focus
is critical to success, and that will require that you turn down certain
opportunities. Successful entrepreneurs often call it ‘sticking to your
Learning to effectively delegate. For a business to grow, the
entrepreneur must grow. When growth begins, you'll quickly find that you can
do only so much and that you need help from others to properly serve
customers. You must evolve from being a doer to a manager of employees and
then eventually to a manager of managers (a leader). "This may sound easy
but it isn't," says Hess. "Most entrepreneurs don't like to give up control
of any aspect of their business. Facing the fact that they can't do it all
on their own and that they must learn to rely on others to complete certain
tasks (and not necessarily exactly how they themselves would do them) can be
a very hard reality to swallow."
Transitioning from owner to leader. When you get to the point where
you're delegating tasks and relying on your employees to drive your
business, you must also transition from thinking of yourself as just a
business owner and start developing as a leader and coach. Evolving toward
becoming a leader and coach is challenging, because both roles require
emotional intelligence, people engagement, and the ability to relate to
individuals in a way that they find meaningful.
"Coaching requires that time be spent getting to know people, listening,
caring, understanding their emotional needs, and helping them grow,"
explains Hess. "Coaching takes patience and a degree of personal emotional
intimacy that many entrepreneurs are not able to achieve. It requires a
continuation of the mind shift from ‘me, the entrepreneur' and ‘my way' to
‘it is really all about them.'"
Hiring smart. Hiring mistakes are costly, time consuming, and create
quality and financial control risks for small businesses. When confronted
with impending growth, entrepreneurs often panic and hire employees too
quickly, making snap decisions based on little data.
"In my research, bad hiring practices often continued when entrepreneurs
tried to hire managers who needed to have functional or technical
experience," notes Hess. "In many cases, the companies had to make multiple
costly hires for the same position before finding someone with the right
competencies who also fit the company culture. Many of these entrepreneurs
frequently stated that they should have ‘hired more slowly and fired more
quickly.' They made much better hiring decisions when they learned to hire
against a competencies and cultural scorecard; conduct multiple interviews;
have multiple people interview prospects; hire on a trial basis; establish
mentors for new employees; develop a good on-boarding process; and encourage
good employees to make hiring referrals."
Managing cash flow. Many times entrepreneurs get overly engaged in
the joy of growth and lose sight of the need to manage cash on a daily
basis. Cash flow management during growth periods is critical, because in
many cases growth requires investments in people, technology, supplies,
etc., ahead of the receipt of cash from customers. Thus, there is often a
mismatch between expenditures and receipts.
"This might sound simple, but it can be a major issue if not handled
properly," notes Hess. "Entrepreneurs have to understand that they may not
be able to afford all the available growth. The amount of cash available for
investment can limit growth, especially in today's economy when many small
businesses can't get loans or credit lines. And finally, I can't help but
stress the importance of cautiously managing your checkbooks, credit cards,
and online accounts. If you do decide to delegate this task, choose the
employee you trust the most and set prescribed monetary limits. Check your
payments and accounts every day, because frauds do occur."
Spending too much time putting out fires. A high-growth environment
is hectic, sometimes chaotic, with multiple mistakes needing to be corrected
almost every day. "Entrepreneurs can easily get sucked into playing the role
of ‘firefighter,'" says Hess, "spending their days putting out fires. The
problem with that is that growth requires the entrepreneur to plan for more
growth, to put in place new and better processes, and to be constantly
upgrading processes and resetting priorities. It is very difficult to find
the time to do all that when your time is eaten up mediating employee
conflicts, correcting inventory orders, calming angry customers, and so on.
Entrepreneurs in my study found that they had to be disciplined in getting
away from their businesses for short periods of time to think and plan. They
needed ‘firehouse' time away from the daily ‘fires' that pop up when running
Creating a high-performance "family." Entrepreneurs often struggle
with creating a high-performance "family" or team environment. The
challenge, of course, arises when someone in the "family" just isn't meeting
expectations and has to be terminated because they couldn't grow their
skills as the business grew. "Here entrepreneurs face an uphill battle in
balancing loyalty and changing performance needs," notes Hess. "Let someone
go who everyone else at the company loves and you've created morale and
emotional issues. Let a poor performer stay and you've created morale and
emotional issues. See the challenge? The entrepreneurs I researched learned
that you can have a ‘family'-like culture and high performance by having
clear job expectations; a fair, transparent, and frequent feedback process;
and by giving people a fair chance to improve or to step into a role that
they could do well."
Understanding that upgrading never ends. The people, processes,
structure, and controls needed to manage a business with $1 million of
revenue generally do not work for a business with $10 million of revenue.
"Entrepreneurs often learn the hard way that growth means continual change,"
says Hess. "And as you grow, the solutions that worked at one level will
most likely not work at the next. Inflection points for the companies I've
studied occurred frequently when they expanded to 10, 25, 50, and 100
employees. When these changes take place, entrepreneurs often realize their
hope of having a smooth-running machine is an elusive dream. Successful
entrepreneurs and their employees are open to learning and adapting in an
incremental, iterative, and experimental fashion. The hard truth is that
growing businesses generally do not experience much sameness or
predictability until they become quite large - for example, larger than $100
million in revenue - but learn to manage these changes properly, and you can
keep the ship pointed in the right direction."
"Growing a business is an evolutionary process," says Hess. "Growth is
messy. Growth is change. Growth has spurts, detours, downturns, and spikes.
Growth requires constant learning and improvement. And if not well planned
and managed, it can outstrip the capabilities of companies.
"These are important points that must be heeded," concludes Hess. "Growth
should be a strategic decision made only after the risks of growing and not
growing have been assessed. My advice is that rather than focus on growing
for growth's sake, base your goals around how you can constantly improve
your business. When you do this, you will be able to meet the challenges of
business growth head on and with great success."
About the Author:
Edward D. Hess,
www.EDHLTD.com, is author of Growing an Entrepreneurial Business:
Concepts & Cases. Edward D. Hess is a professor of business administration
and Batten Executive-in-Residence at the Darden School of Business,
University of Virginia. He is the author of nine books, over 60 cases, and
over 60 articles. His work has appeared in over 200 media outlets around the
world including CNBC, Fox Business News, Dow Jones Radio, WSJ Radio, MSNBC
Radio, NPR, Forbes, Bloomberg, BusinessWeek, CFO magazine, Financial
Executive, Journal of Applied Corporate Finance, Big Think, the Washington
Post, and Financial Times.