Growth is top of mind for most entrepreneurs. When you’re growing quickly, expenses are often incurred ahead of revenue growth. Hiring, special projects, building a product . . . all these things happen before you see additional revenue from customers. For this and other reasons, a high-growth company may be unprofitable. You’ll often hear unprofitability described as investing in growth, and investors may give such a company an attractive valuation.
Here are a few things I’ve learned about growth over the years:
- Messiness – Chaos reigns when you’re growing rapidly. A company growing at a breakneck pace isn’t a well-oiled machine. I like to think of it as a land grab. When growth slows, hone the efficiency of your processes. But while the opportunity’s in front of you, grab as much land as you can as fast as you can.
- Valuation – If you’ve achieved product–market fit, investors will overlook losses for a high growth rate. One hundred percent or more annually—which means you’re doubling every year—is great. When growth is minimal or negative, the valuation will be affected and investors will ask lots of tough questions.
- Source – Understand what’s driving your growth and double down on it if you can. If you don’t know the origins of your growth, you could inadvertently make decisions that hinder it or be caught off guard when it slows down for reasons you don’t understand and haven’t planned for.
- Alignment – When growth is expected to slow or begins to slow, consider adjusting expenses. If you’re no longer getting an ROI on a spend, reduce the spend or transition the resources to something that could provide a higher ROI.
- Expectations – High-growth companies can be caught in a situation where they’re penalized by investors or the stock market if their growth rate slows even slightly. Managing external expectations can become a critical part of managing growth.
- Channel partners – Growth through channel partners is a fine strategy, but I’m a fan of most of your revenue deriving from a direct relationship with customers. You’ll better understand your customers’ needs and a change in a third party’s priorities won’t be as likely to affect your growth.
All entrepreneurs aim for growth, but we’re not always prepared to manage it. These points are just a few things I’ve learned along the way that I hope will help as you think about growth.