Tuesday, July 2, 2013
The Upside of Managed Growth for a Start-Up
The upside of managed growth for a start-up
In a world where fast business growth is applauded, it is easy to forget that it is not the norm. Not that there is anything wrong with fast growth, but what about everyone else? How many times have you seen companies that grow really fast and then fall flat? I sometimes save magazine articles, add them to my stack of things to reread, only to find them years later when I am cleaning off my desk. (I know that I am not alone.) What is interesting is the number of companies mentioned that are no longer around. They had a great idea, but couldn’t survive. There are many reasons for that, but business cessation is a whole other topic that could go on for some time. The obvious tortoise-hare analogy aside, there is something to be applauded about managed growth.
You may have noticed that the previous blog posts here discuss entrepreneurs who have carefully managed the growth of their companies. Oscar from Landau Confections emphasizes innovation in both product and production, ensuring that the results are truly hand-crafted and original. Cristina from Kika’s Treats was given the opportunity to accelerate growth by mass producing her products, but didn’t want to compromise the quality. Dandelion Chocolate’s business model specifically focuses on small batch chocolate, isolating the sources to bring out the individual flavors hidden in each harvest. Robin at Bequet Caramels described her strategy as focusing, “on one niche and make the best product we possibly can in that niche. We were often asked why we don’t make chocolates, too. The answer has always been that our goal is to make the best caramel anyone has ever had (period).”
These companies were chosen not because it is interesting to try new candy, but because each demonstrates a dedication to high-quality products. Also, each company was given the opportunity to grow quickly, but the owners concentrated on the quality of the product, staying true to their existing customers, and continuing the practices that had succeeded for them. These owners decided early on what mattered to them in the creation and development of their companies. Individually, they chose a strategy and stayed true to the course.
Entrepreneurs are often faced with two extreme scenarios – too few options (such as early financing) and too many options (like an overwhelming number of potential suppliers). Knowing ahead of time what you want your company to represent helps with both situations. When you don’t have many options, your dedication to your strategy can help spur you to innovate new solutions. When too many options exist, your knowledge of yourself and the company can help eliminate those choices that don’t align with your long term goals. This is not to say that sometimes compromises aren’t necessary. However, knowing what you stand for makes decision making during these situations much easier.
On a side note - Public companies often don’t have the option to manage growth in these ways when shareholders and the SEC require the optimization of shareholder wealth (aka stock prices). When your business centers on driving down costs to increase profit, it is hard to choose the more expensive route. Some companies are expected to make compromises that detract from the initial goal since higher quality raw materials, labor intensive production, and higher ethical standards for sourcing often cost more. When a company targets the mass market who is increasingly concerned about price, executives often believe that they do not have the option to increase prices to off-set higher production costs. Few companies have been able to do this. In fact, one of the critiques of the Western business environment is just that, too much emphasis on meeting the quarterly expectations so that the stock price doesn’t drop.
In turn, costs are minimized to help maximize profit.
And we buy it.
So, what is the right formula? You decide. Every dollar that you spend is your vote.
Get to know the products that you buy and who makes them.