The Start-up Diary Part 1: Growing Pain
Growth by default is the number one priority for start-ups. Understandably, the only reason why investors would want to put money into businesses with no collateral is capital gains. While the average investment’s required churn out is usually a reasonable 10-20% annual ROI, venture capitalists expect start-ups to grow at a substantially higher, and in some cases near impossible, rate. What this means for the young business is that operation will always have to be pushed towards a constant growth goal when many of their processes are not yet ready for the job.
One of the first processes to be affected is, of course, sales. As market share growth gets translated into increasingly mounting sales target, the team are forced to make more compromises with clients. In other words, in the search for more contracts sold, they have the tendency to over promise what the company could deliver and bill. This is also a direct consequence of rapid expansion; miscommunication between front and back office starts to grow and before you know it, you are sending out salesmen who do not fully understand the capacity of the rest of the team. Eventually the firm ends up with contracts that are booked but cannot be billed, and unsustainable growth that happens only on paper.
Fortunately, solutions do exist for this conundrum. Still, one should keep in mind the main challenge for start-ups: unlike traditional businesses they have to achieve a much higher growth rate in a much shorter time. Effectively, while these solutions can be applied using internal resources, it usually requires expertise help to make sure everything is properly implemented and deadlines are met.
If there’s one thing investors cannot get enough of these days, it‘s well performing start-ups. Even with thousands of new companies founded every year, chances of failure are still terribly high; as many as 80% can’t hit the promised return on the original investments. Contrary to common belief, the problem is often not the ideas: most start-ups have a strong business case for what they do. It is actually in the implementation of these ideas, particularly as the business tries to spread its services further that the real problems surface. How the company deal with these determines whether it will go big or go bust.