Entrepreneurship seems like a magic recipe. It removes people from unemployment, opens up new opportunities to launch ideas on the market, differentiates themselves, and creates wealth (and therefore employment). There is no institution worth its salt that does not want to promote entrepreneurship.
This is important very important. That many people are looking for an opportunity to create a business means thinking about how to solve a problem. Because if problems are not solved, or someone doesn’t offer something that they are willing to pay for, there will be no business for long.
Instead, perhaps we focus exclusively on CREATING new companies and not so much on making them GROW. Here the data is increasingly overwhelming.
To undertake not everything goes, we said once. But today, I wanted to focus on another complementary aspect. Suppose young companies can represent up to 20% of employment (study carried out for the United States). In that case, young companies that grow between years 5 and 10 can be responsible for 50% of creating new jobs (there are countries in Europe where this percentage is even higher). A company that grows that can reach more clients in more markets and that continuously improves its results is a job creation bomb. It is a bomb of tirelessly looking for improvements -in product and processes-, and of remaining eternally different.
For me, there are five fundamental problems -or challenges- that a company faces when managing its growth, just the moment where there is a great impact in terms of employment, investments, and possibilities of generating wealth. Those problems or challenges are the following:
1- Growing up is not FREE
Growing implies selling more and ensuring that those sales generate more – which would be the ideal – at least the same added value. Because selling more implies investing more –machinery, equipment, technology- and spending more –especially in people, marketing or simply in internal organization.
If sales do not grow more than in proportion to expenses – which is known as ‘scaling’ – growth can cause problems. Which? Of liquidity. For some time, it must be assumed that selling implies spending and investing more resources and that growth must be financed.
It isn’t easy to land in a new market in which nobody buys from you, and they do it from one day to the next without allocating a single euro. And it isn’t easy to manage more volume of activity with the same team of people. Growth brings new problems that must be estimated, anticipated, and, above all, find ways to avoid breaking through the box.
Assuming that growing up is free is wildly delusional. Even businesses with a 100% Internet focus can’t do it. If this happens, we would be facing the goose that lays the golden eggs, but I have seen few, which does not mean that there are none.
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2- Growing requires a lot of well-managed and incentivized talent
The beginnings of companies are usually more or less the same, the founding people who compose them. Normally, or so is ideal, forming a team with different skills. And it is that if they all do the same, the harsh reality shows that it is more difficult to grow and survive.
But if you start to grow, you have to invest, especially in people.
And here begins one of the biggest challenges for young companies: hiring talent can involve a very important outlay of resources – which are not usually had. Incorporating top-tier people with third-tier budgets is always complex. But, on the other hand, if the people to sign up are the right ones – and here there are many reflections – the possibilities of growing, improving, and achieving extraordinary results can be a reality.
Urgent is the fiscal and commercial ones that provide remuneration in kind -in the form of actions or similar- to have motivated teams and strong incentives to give the best of themselves and make a company grow -especially when it is very young, less than 5 years of life.
3- Growing requires capital, and debt can be very dangerous
Since growth is not free, and adequate financial consulting is needed to finance growth. If the business plan has died, especially in the early stages of a company’s life, it is still alive in the case of growth, and it is very important.
But a business plan is not a predictable straight line. It cannot be assumed that having a business plan means eliminating risk, much less uncertainty; Which brings us to the next point.
4- Growing requires managing risk and mitigating uncertainty
Risk can be managed and, although it is more difficult, uncertainty too. Risk is a measure that allows us to know if the path we have traced is more or less probable. By doing this, will we get to this site?
Normally there is an associated risk because it is usually (almost) never met. The uncertainty lies in the fact that we do not know where we will end up: bankruptcy or stardom. For this reason, in these growth stages, it is necessary to create scenarios and simulate alternatives.
What happens if, after investing, I sell less? What if the clients do not assume the prices in that market, and I have to change them? if I have to spend more than expected? What if I sell more than expected? What is the collection/payment terms, and how do I finance cash mismatches – yes, there are usually many cash mismatches to grow?
You cannot go to a growth plan ‘bareback’; you have to do the numbers very well. And without knowing if a debt can be assumed – and repaid – or the risk of entering a liquidity trap is very high. If so, the option of considering the incorporate partners.
Or financial partners – who seek a return because they consider that your capacities to grow are credible and, above all, profitable; I will only speak of this subject one day-; or industrial partners are also great options.
5- Growing requires the ability to communicate and sell continuously
You have the (lame) product or service. Or you have the (lame) team. You know what you want as a company, and you can grow because what you have in your hands solves problems, you like it, and customers pay for it. This is all very well but, I’m sorry if you don’t know how to communicate all that, your company is dead. I see it every day, and it is very sad.
Teams capable of developing fantastic technology and products; to bring together top professionals … but who are not capable of motivating, communicating, simply transmitting what they do, who doubt their strategy and why they do what they do. We tend to neglect thinking in design mode. This means thinking about the details, and it is transmitting, it is integrating, it is empathizing, it is understanding your environment and creating bridges with it.
Most of the solutions already been invented in the most advanced countries in the world and many emerging countries. Solutions that do not greatly impact budgets because many are about facilitating the right fiscal and commercial environment. For a company to grow is the best oxygen pump for creating wealth, employment, and the future of this country, it is not silly.