At Priority Credit Recovery, we see business owners go through these problems all the time. Here is a very timely article that talks about what you can do as a new business owner to increase your chances of survival.
Managing growth would be a lot easier if you could peer into the future and see exactly what would happen to your company if you doubled or tripled in size. Unfortunately, magic crystal balls only exist in science fiction and fairly tales, right? Not so, says Vistage speaker and organizational
development expert Ian MacDougall.
development expert Ian MacDougall.
He asserts that you can know about many organizational problems in advance, and therefore plan ahead to minimize their impact on your company. All it takes is an understanding of organizational life cycle principles and the ability to identify in your company the characteristic traits of each growth phase.
"As organizations grow, they move through a series of distinct phases that make up the organizational life cycle," explains MacDougall. "Some phases involve growth, others involve decline, but each has a unique set of identifying characteristics and problems that befall all companies who enter it. More important, these problems are unchanging and highly predictable. Every growing company -- regardless of size, industry, or age -- sooner or later runs head-on into these inevitable challenges.
"The good news is that by knowing where your business stands in the life cycle, you can identify these major barriers to growth before they occur. You can't eliminate them because they are direct results of the previous stage's growth. But you can do a much better job of managing them and thereby facilitate your company's evolution to the next growth phase."
The five growth stages in the organizational life cycle are courtship, infancy, go-go, adolescence and prime. Since the business exists only in the entrepreneur's mind during courtship, this article will focus on the predictable organizational pitfalls found in the other four phases.
Infant organizations eat money like it's going out of style. Consequently, they have two primary tasks -- get the product out the door and keep the cash coming in. To keep the cash flow positive, the company has to sell, sell and sell some more. Often, it takes business at a loss just to get the cash coming in. Infancy represents an exciting but very risky time in the life of the business. According to MacDougall, the primary challenge in infant organizations is survival. This manifests itself in the following organizational problems:
- Running out of cash. Often, the infant organization grows so quickly that it outstrips its ability to pay its bills.
- Making a fatal mistake. The company gets hit with a product liability lawsuit, misjudges the price point of its product, or suffers some major trauma from which it can't recover. Unlike larger companies with more resources, it only takes one major mistake to deliver a death blow to an infant business.
- Loss of commitment. Often the founder gives up too much equity in order to finance the business. Once he loses control, the founder often loses interest and the company dies of neglect.
- Personal problems. Many times, the founder's spouse doesn't share his or her vision and dream for the business. When the spouse resents how much time the entrepreneur spends with the business, the personal turmoil can easily tear the fledgling business apart.
To work through these inevitable problems in the infant phase:
- Keep the cash flow positive at all costs, even if you have to tone down your sales growth for a while. Do not grow yourself out of business.
- Don't give up control. You may have to give up some equity, but never give away controlling interest in your business.
- Track cash flow before profits. Rather than using traditional monthly P&L statements to monitor your company's financial performance, use a 13-week rolling cash flow report. Forget about profits and watch cash flow like a hawk.
- Don't seek the advice of consultants. Most are trained to work with larger, more mature organizations. Consequently, their counsel tends to be inappropriate for infant organizations.
- Avoid premature delegation. In infant companies, the roles are often blurry. Do not delegate any roles or responsibilities until you know exactly what you're delegating.
If your company is experiencing cash flow problems, give us a call right away at 1-866-266-0117.
At Priority Credit, "We Protect Your Corporate Heartbeat."