How will you manage in the high-growth environment?
Managing in High-Growth Environments
When a venture reaches Stage Five on the entrepreneurial life cycle, Full Launch and Growth, the venture team needs to be sensitive to certain high-growth management issues. Usually, rapid growth is seen as a positive sign of success. However, uncharted rapid growth can quickly change the status of an emerging growth venture from profitable to bankruptcy.
Uncharted growth causes the venture to stray from its goals and objectives and to take on too many ideas and opportunities. It can quickly dilute leadership effectiveness and result in weak management, poor planning, and poorly allocated resources.
Quite often, delegation is avoided and control is maintained by only the founders, creating bottlenecks in management decision making. It also leads to communication barriers between individuals and all other stakeholders. New product programs are put on hold, and quality control is not maintained in the current products. Uncharted growth can also lead to stressed, overworked, and burned-out employees, with little attention given to training and employee recruitment.
How Will You Become a Recruiting Machine?
Recall from previous Articles that the average venture-backed company employs nearly 100 workers within five years. The U.S. Department of Labor reports that the national average of employee turnover is 21 percent. Added together, the cost of staffing a fast-growing venture can become quite toxic unless well planned.
Recall from a previous Article that the top-ten winners on the 2002 Inc. 500 were hiring about one new employee per week for five years straight. Staffing.org, a nonprofit organization focused on staffing metrics and measurements, found in 2002 that the cost per hire for firms with less than 100 employees was $7,122. This means that these fastest-growing Inc. 500 ventures spent on the average $1.8 million on just recruitment costs through their growth stage.
To get started recruiting, first embrace a “talent mindset” and craft a “winning employee value proposition.” One of the CEO’s chief tasks is recruiting new talent, picking the right people for particular positions, grooming young stars, developing global managers, dealing with underperformers, and reviewing the entire talent pool. We have found that your first five to ten hires will come through your insider contacts: your board members and your professional service providers.
Also keep your eyes and ears open for potential candidates among your vendors, buyers, and even competitors. Finally, you must really believe in what you are doing. As Michael Dell says, “If you’ve got an idea that is really powerful, you’ve just got to ignore the people who tell you it won’t work, and hire people who embrace your vision.”
Sharing the Rewards with Those Who Produce
Frederick Herzberg, who studied employee motivation, contends that key motivators are recognition, achievement, the work itself, responsibility, advancement, and the chance to learn something new and exciting. But the key question is how to reward people financially. One of the simplest practices we have come across for ventures with less than a dozen or so employees is to set aside a percentage of gross sales to be paid out to employees. Because this means that each worker’s piece of the reward-pie would shrink with every new hire down the road, this becomes a built-in incentive for current employees to help each other become more productive.
Siebel Systems focuses on maintaining high levels of satisfaction among customers. Tom Siebel found that “all our compensation is tied to those customer satisfaction scores. It’s the best way to go, because it ensures that we have a customer-based environment.”
Previous research has demonstrated that equity compensation is the most important incentive for venture growth and profitability. As Tim Draper from Draper Fisher Jurvetson told us, “With the equity-based model, everyone pulls their own weight.” Stock options provide employees the right to purchase a given number of shares of company stock at the “strike price” between the vesting date and the expiration date of the options.
T. J. Rogers, president and CEO of Cypress Semiconductors, says that “broad employee stock ownership is the genius behind Silicon Valley’s economic miracle.” He adds that “stock options promote long-term thinking, astonishing innovation, progress, and broad wealth creation.” Bill Gates shared his wealth through stock options like no one else before. At the end of 1998, he had created more than 20,000 millionaires at Microsoft, from code-crunchers to secretaries.
Managing in Economic Downturns
We found a common approach to holding your own in economic downturns.
– First, focus on doing one thing well. If you do one thing better than your competitors, in a downturn your customers will dump everyone else first.
– Keep innovating, especially with R&D investments and new product projects, as innovation makes extraordinary ventures out of ordinary ones.
– Watch your wallet, especially with inventory or accounts receivables, and be more conscious of what you are buying. In slow times make protecting cash flow everyone’s responsibility.
– Seek out and develop advantaged relationships with companies or organizations like the U.S. government, where spending is based on long-term planning and will continue during economic slowdowns.
– Finally, have reasonable expectations. Be slower to expand and have backup strategies.
The bottom line is that you will have to be well prepared to scramble and work multiple alternatives to quickly pursue opportunities as they arise when the economy rebounds.