04/08/2013 12:05 pm ET Updated Oct 22, 2013

The Trouble With Growth

Since coming in to take over my father’s 40 year old industrial safety equipment business and Red Wing Shoe dealer we’ve had some great successes like tripled revenue, doubled staff, etc. Sounds fantastic, right? Don’t worry I pat myself on the back more than I should. Let me assure you that it’s a good problem to have, especially after coming into the business back in 2009 when the company was scraping the bottom of the barrel. Back then I certainly didn’t think that we’d be in this position today.

I’m proud of the growth we’ve experienced, but some days I want to have a beer and stare at a blank wall for an hour when I get off work. As we start to plateau and level off our growth I want tobe able to maintain what’s made us successful so far and become more efficient. Constantly growing over 20%-30% a year would be exhausting. The initial excitement over diving into new markets, making new hires, and cultivating more customer relationships begins to wear off and stability becomes a hard to reach target. It’s at this point that I’ve come to realize three things I wish I knew four years ago about growing a company, which I’ve since learned from the School of Hard Knocks.

1. Growth can mask unprofitability

It’s not that we’re giving away our products, far from it. We’ve invested in more profitable items and negotiated better deals with vendors so overall we’re more efficient than we were when I entered the business. There are necessities in my monthly expenses my father told me would keep me up at night like rent and payroll. He was right, I do have nightmares about the day when customers will stop showing up and the bills drown me in an avalanche of paper. Growing the business has added more items to the list of things that keep me awake at night, all of which didn’t exist five years ago. Now these expenses are necessities for growth like the website, search engine optimization, advertising, new vehicles, new product lines, and new operating software. We have always wanted to have the ability to pull our horns in for a lot of expenses should things ever get tight, but the fact remains that growing revenues can mask expenses growing disproportionately faster and might be harder to pull back from. (cant make sense of this sentence)This becomes startlingly evident when sales begin to level off and expenses keep rising or you realize that they level off closer to sales than before leaving you with a smaller margin to operate with.

2. Growth requires cash

Do you want to grow your business fast? You need cash now, not in 30 days when that potential contract you’re working on with a new customer closes and you get paid. So put some of your money in the till, open up a line of credit, call grandma, or whatever your poison might be. Cash flowing growth isn’t very fast unless you’re operating a business that prints money, and if so give me a call so I can open a franchise. During growth periods your profits and loss sheet can be a blind cliff. You pat yourself on the back for all the profit you bring in with huge bottom line numbers. Meanwhile you ignore the fact that all your profits are sitting in all the wrong places on your balance sheet. Instead of sitting in the bank as cash, your profits are going into places that don’t help your daily business activities. Some of the places profits like to hide are in receivables that don’t turn well, in inventory that’s gathering dust on a shelf, or into assets like a shiny new truck that you should think of an investment instead of as an asset. As you grow keep a close eye on your cash flow statement and your cash on hand or you’re going to find yourself without the ability to pay for those new projects and ideas.

3. Hire slow, fire fast

There comes a time when you bring in new people in anticipation of growth, and then there are times as an owner you’re mentally fried and looking for the first warm body that can speak coherently to cope with unexpected growth. The thing I’ve found most important is wait and hunt for a great hire rather than just hiring a warm body. The first is going to make your life easier and help you achieve long term goals, while the second is going to consume more of your attention for training, reprimands, retraining, conflict resolution with great employees, and finally having to fire them.The first thing I look for is a good fit with my company. They need to have the right character that fits the job and a personality that fits the other people in my business. The first is solved with a good job description and good questions during the interview. The second we discover by letting my father conduct an interview. He’s the soul and personality of our company so when people hit it off with him we’ve got someone with staying power thatwon’t be a distraction or cause unnecessary drama in the workplace. People that don’t get along with my father won’t get along with the rest of the staff, and this is a family business both because I’m taking over from my father and because the people that work here all feel like a part of the company.

Firing people can be hard, maybe you like them or maybe you hate confrontation. I counsel my folks regularly on paper, so if I have to fire someone I have cause and I know I’ve done my best to get the best out of them. Counseling isn’t only for the bad, it can also show who deserves a raise at the end of the year. Either way, you’ll never regret firing someone too soon, but you’ll always regret hiring someone too soon.

These are the three biggest lessons I’ve had knocked into my head over the past few years. I’m still learning and I imagine I will as long as I keep trying to improve and making mistakes along the way. The first thing I learned as a cherry Second Lieutenant in the U.S. Army was if you’re not making mistakes then you’re not trying anything new. Hopefully by reading this article, it will keep some folks from repeating my mistakes as they try to grow their businesses.

To learn more about Sam's Safety Equipment, visit the website here.

This blogger graduated from Goldman Sachs' 10,000 Small Businesses program. Goldman Sachs is a partner of the What Is Working: Small Businesses section.

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