By: Odysseas Papadimitriou
Entrepreneurship numbers spiked to the highest levels in more than a decade during the Great Recession, according to a study from the Kaufman Foundation, with an average of 340 out of every 100,000 adults starting their own business each month in 2009. That’s 27,000 more start-ups per month than the year before and 60,000 more than in 2007.
Now that we’re a few years removed from the official end of the downturn and have witnessed modest recovery, it goes to figure that many of these recession-era entrepreneurs are looking to take their companies to the next level. Whether that will entail hiring your first employee, moving out of your garage and in to a real office or preparing for an IPO, two things are clear: 1) growth can be scary; and 2) you’ve got the chops, having nursed a fledgling business through one of the worst recessions in U.S. history.
So, when doubt inevitably creeps into your mind as you strive to take your company to new heights, the resolve you’ve gained over the past few years will help you persevere. But resolve and experience alone won’t turn your company into a true success or give it much staying-power. You need to devise and implement a well-thought-out growth strategy. With that in mind, we will discuss the merits of 5 of the most effective growth strategies for entrepreneurs below.
1. Hire People You Trust & Delegate Strategically
Your company is like your baby. Trust me, I understand. I left a senior director position at Capital One in 2008 to start my own business, and after spending countless hours raising it, with my hand in every aspect of the company’s operations, letting go – even a little bit – was very difficult. However, much like a parent knows that sending their child off to college, while hard, is the best thing for them, I knew that no matter how hard I worked, I couldn’t do everything and build the company in the manner I envisioned.
The thing is, delegating responsibility isn’t necessarily as simple as hiring someone off the street and giving them a bunch of tasks to complete. Effective delegation requires an intimate knowledge of oneself. You must understand your own strengths, weaknesses, and preferences in order to identify where additional manpower is needed as well as what type of people to hire. Ideally, your employees’ personalities should mesh well with your own (you’re going to spend countless hours working together, after all) and their strengths should complement your weaknesses.
Once you get the right personnel in place, all that will be left to do is train them and avoid micro-management. I personally feel that intensive, hands-on instruction in the beginning of an employee’s tenure is effective in that it clearly establishes your expectations and will help you either reinforce or see the error in your hiring decision. If you decide to retain the employee, you’ll be confident they know what they’re doing, which will allow you to focus on more strategic work. If you decide to let them go, well, at least you found out they weren’t right for the job early on.
2. Be Careful with Raising Money
“Too many entrepreneurs view raising venture capital as an end in itself,” Angelo Santinelli, an adjunct professor of entrepreneurship at Babson College, told CardHub in a recent interview. “They place too much emphasis on the signaling benefits of raising capital and think short-term rather than long-term about issues of control, dilution and strategic direction of the business.”
This is a lesson that every entrepreneur must learn in order to survive. Raising capital is not the goal; building a fundamentally sound company that is successful in the long term is the true objective. And in order to meet it, you must think long and hard about your funding needs before accepting money from a professional investor or leveraging expensive loans and lines of credit. Rashly jumping at financing opportunities can lead to all sorts of unintended consequences, after all.
For example, while the deep pockets and connections that venture capitalists bring to the table can be extremely alluring, getting into bed with them necessitates ceding significant control and equity and is a major managerial distraction.
Similarly, statistics have shown that for every $1,000 in credit card debt a company incurs during its first year, the odds of its survival fall by more than 2%. Using a business credit card for funding purposes can also rob you of debt stability, as issuers are able to raise rates on existing balances whenever they want.
Besides, having just the right amount of capital can actually be a growth strategy in and of itself, as it forces you to become more efficient and maximize every dollar – habits that can pay huge dividends once you become profitable.
“An abundance of capital tends to dull the mind. There is the tendency to hire too fast, pursue too many un-validated ideas, and spend on non-strategic elements of the business,” according to Santinelli. “Using one’s own capital first and essentially being capital constrained in the early going is not necessarily a bad thing. There is a natural need to focus more narrowly, develop and test hypothesis, and harness resources intelligently before building the product.”
3. Market Penetration & Development
Once you establish a good product and a solid customer base, expanding into adjacent markets and figuring out how to maximize profits from existing customers are natural next steps that come with relatively low risk, yet have the potential to provide significant growth. The way in which you approach this type of expansion and when you do it will depend on your industry as well as the amount of capital required.
The amount of market research and business planning that is required to expand in this manner is inversely proportional to how easy it is to test your way into the market. If testing is easy, don’t waste time trying to perfect every minor detail, as market response will provide all the feedback you need. However, if you are in an industry where market maneuvering is difficult and costly, you’ll need ample cash on hand to withstand unexpected challenges and market vagaries.
4. Seek Strategic Partnerships & Acquisitions
While young companies typically don’t have the capital needed to buy out the competition or purchase key cogs in their supply chain, you can use strategic partnerships with higher-profile businesses in order to build brand awareness and stature in the industry. Then, as your company matures and either reaps profits or goes through another round of financing, you may be able to make acquisitions in order to bring your business into a new space or reduce costs in the long term.
5. Don’t Get Comfortable
The best companies don’t get comfortable; they continually look for ways to improve their product, become more efficient, and increase customer satisfaction. Just look at the likes of Apple, Facebook, and even the NFL. All have extremely popular products, yet they continue to take risks because that is the only way to avoid becoming obsolete.
This also means that you must not be afraid to sacrifice profitability now in return for a bigger payoff down the road. Truly taking the next step with a start-up often requires diving back into the red in a big way. Just make sure to dive deep enough that you avoid winding up in no-man’s land.
At the end of the day, growing a business is equal parts art and science. Analytics, market research, and past examples from the corporate world can give you ideas about the best ways to expand, but you have to come up with the right recipe for your particular company and appetite for risk.
About the Author:
Odysseas Papadimitriou is a personal finance expert whose views are regularly mentioned in many major publications. He is the founder and CEO of CardHub, a leading U.S. credit card and gift card portal, as well as WalletHub, the first personal finance social network.