I meet a lot of founders, CEO’s and investors of mid-size companies within the infrastructure financial services industry and within the engineering and manufacturing industry. My two fields of profession as a management consultant and a deal structurer. Recently we have discussed why many promising ventures and businesses often tend to get stuck at scaling and struggle with growth despite brilliant business propositions with huge market potentials.
6 reasons why companies struggle with growth:
Here are the six conclusions from our discussions, focusing on those businesses that have a driven founder and a truly scalable business proposition, i.e. lacking neither of these two qualities:
- Shooting too low in sales, i.e. getting stuck with small-ticket businesses and/or inadequate small business operations for too many years. These piece-by-piece sales efforts may grow nicely, but most certainly not to a next level-size.
- Shooting too high in sales, i.e. targeting the elephants too early without first securing multiple reference orders, i.e. proofs of concept.
- Underestimating the power of pro-active marketing and visibility. Not only at industry seminars, at LinkedIn, in online media and other areas but also underestimating to subtly targeting those behind the scene influencers and decision makers that you never meet. I.e. miss-out in mothering a demand alongside sales and instead rely entirely on the worlds understanding of once own brilliant product and the scoring of a handful larger prospective sales efforts, of which we all know most will never come to fruition.
- Not fully understanding the seemingly non-rational decision-making processes, timing and dynamics within prospective large client organizations when proposing radically new products, processes and business models, or when approaching as a potential new partner and supplier.
- Not pro-actively scaling the delivery organization, i.e. miss-out on creating long-term trustworthiness with larger prospective customers, again relaying entirely on once-own product brilliance and sales efforts.
- Scaling the organization but remain dependent on the founder, not securing additional multiple senior executives to build growth, organization stability and hence trustworthiness with larger prospective clients or distribution partners. Let go to get going. More senior hands can create more. It is often as simple as that.
3 specific drivers why founders struggle with growth:
If you like to take action, you can read more here. The successful mid-size and large companies I usually meet have succeeded in most of above six areas of scaling pitfalls. I have come to three conclusions when discussing with these founders and CEO’s why many promising businesses struggle to grow beyond their initial revenue mark:
- Sales energy is often not to be complained about, but sales strategy, tactics and supportive marketing and behind the scene efforts to build trustworthiness can often be done differently.
- Over-focus on products development and/or sales, missing out to pro-actively build a scalable operation and hence trustworthiness with prospective customers.
- Underestimation of resources and timing of resources needed to scale to the next level.
Scaling a business takes time and resources unless you really hit the holy grail with perfect timing. Even the most successful of success stories have invested heavily in time and resources, and here comes the dilemma: Making progress and building resources cost money. You can rely on your earnings as you go but most early stage businesses lack any substantial cash flow. At least for any meaningful investments in resources to tick off above six scaling challenges to avoid struggle with growth.
Sometimes investors has a bad influence on growth
Bringing on investors is common, but mistakes are equally prevailing and put off many non-wealthy founders of promising growth businesses. Ownership dilution and control are only two of many concerns. Valuation, size and timing of capital injections and use of proceeds are other concerns and potential pitfalls.
Undisputed is the fact that mega success stories, that many founders and VC’s envy in terms of growth and scaling, has been successful in raising capital for growth. Not saying that they have been successful in attracting investors. It is rather so that these companies has been successful in the company’s timing to raise capital, structuring the funding plan and making use of these funds to build on above six challenges while retaining founders influence and personal wealth.
It is sometimes frustrating to see that many incubators and start up environments foster a measure of success in terms of number of investor meetings, early stage pre-money valuations or early capital raised. Having said that, it is equally surprising that we sometimes see promising opportunities and growth businesses holding back on investments due to lack of funds and hence seriously missing out to take the company to the next level. Lack of well-planned and well-executed investments is often why many businesses struggle to grow beyond their initial revenue mark. Be it relativly smaller investments at long-term familly businesses or larger investments in aspiring, fast-growing tech companies.
There are extremely few companies that hit the holy grail and do not need to make substantial investments in growth along the trail. Most companies struggle with growth or margins. Almost all truly successful and fast growing businesses have made multiple and gradually increasing investments in resources for grow. From wealthy founders’ pockets, or by wisely bringing on external investors at the right time, for the right purpose and with a thought through growth and funding plans.
With attached picture I try to illustrate a couple of things: Many fast-growing companies that funders tend to envy has hit the €100mn mark in revenue already on year 5 from inauguration of the company. That does not come without multiple and carefully planned and executed investments in product development, sales and operations resources. Within the next additional five years these fast-growing companies can hit sales in hundreds of millions of euro, or several billions of euro. Again, this does not come without continues investments in the business.
Believing that scale and fortune will come because of the founders’ energy, the brilliance of once offering or because of the sales efforts by a couple of hands full of people is truly to hope for the holy grail to appear. It has happened, but extremely seldom and that is why many businesses struggle with growth.
Scale either comes from being 40 years in the business or from making fairly sizeable step-wise investments in previously mentioned six challenges. That’s my conclusion when talking to successful mid-size and large companies that has managed to grow successfully. Feel free to complement or challenge our conclusions.