When Startups Go Stale
How To Keep Your Fast Growth Company Growing
One passion of mine has always been to watch and learn from the evolution of companies. I see them start and succeed, start and fizzle, or start, succeed and then grow stale. Rare is the company that hits the streets as a blazing startup, and then manages to sustain the explosive growth and profitability it enjoyed during its heady three to five year rise from nothing. The fact is that most companies eventually settle down and 'mature.'
From clever branding and marketing, unique products or technology, or, from finding and exploiting a powerful new market opportunity, brand new companies often knock the top out of what conventional wisdom promotes as being 'realistic' growth and profit rates. They come into existence rallied around a new angle or approach, hit the market hard with that new message, and, draw customers like flies to honey. So goes the story of the successful startup. Double or even triple digit annual growth is the norm for these feisty interlopers.
Once the startup has successfully blasted a new door open into the market, things almost always change. The pace of innovation slows. The profit growth eases. The revenue acceleration stalls. The 3, 5, or 7 year old company begins to look a lot like the 10, 25, or 50 year old companies it originally surprised.
Why Does Growth Slow?
Growth slows because a company begins to focus more on milking incremental gains from its previous investments, rather than relentlessly continuing to focus on new and different opportunities. While it was 'new and different' that caused the initial explosive growth, it is the invested capital into those projects that eventually becomes the undoing of the growth rate. Managers begin making what appear to be wise decisions to make improvements in the existing products and technologies instead of inventing new ones. The result? The growth rocket stalls.
Keeping The Rocket Soaring
The baggage that weighs down the growth rocket is invested capital. The more cash that accumulates in capital equipment, dedicated staffing, and specialized infrastructure, the greater the tendency to focus efforts on extending the application of those assets. In other words, the more cash that is sunk into doing the things you do now, the more pressure there is to do more of what you already do, instead of doing something completely different. 'Different' requires new capital investment into unproven assets.
The answer to avoiding growth stagnation is to avoid excessive invested capital into goods, processes, and facilities. Find ways to craft your business model that are cash flow based, rather than capital investment based. Outsource everything possible. Lease rather than buy. Sell consigned goods rather than purchasing them.
The most nimble company is one that owns nothing. There is zero pressure to maximize rate of return on invested capital, as no capital is invested. Changing or adding products or services becomes as simple as adjusting the terms of payment contracts, or crafting new ones. And, everything is paid from incoming revenue.
A Non Traditional Company Culture
At the core of this unconventional approach to maintaining maximum growth rate is the notion of 'value added.' Specifically, such a company would have a rock solid understanding of just what elements of ideology, operations, or marketing that they can add to the creation and fulfillment pipeline that is at the core of their competitive advantage. What does the company do better than anybody else in the world? When you know that answer, you strip away every other activity possible, using outsourcing or upstream or downstream contracting, and you focus the entire company on that one factor.
Only Do What You Do Best
If your strength is delivering a compelling marketing message to the world, gear your company around this strength. Farm out all other tasks. If you have a unique production process that gives you a substantial cost advantage, then focus on production, farm out the sales, supply, and logistics functions to others. If your strength is idea creation, then build your company around creating ideas, and hand the entire rest of the development, production, marketing, and fulfillment of the resulting products or services to others.
Your company's maximum profitability will be created by the one thing you do best, hopefully better than anyone else in the world. By investing resources into activities outside this core strength you are trapping yourself into a path that will inevitably lead to stalled growth and reduced profits. By stripping away all non-core activities, you are able to concentrate exclusively on the engine that actually drives your growth, and maintain the flexibility to immediately pursue any new opportunities you create in the future.
Find the one thing your company can do better than any other company in existence, and focus all of your invested capital and resources on doing just that. Outsource everything else.
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