The majority of businesses in the recent FT 1000 list of Europe’s fastest growing companies are technology businesses. They may not all list as technology companies but certainly looking through the list – Deliveroo, Thermondo, Carwow and Smarkets, to name a few – most are built and operate on digital platforms or utilize digital technology at their core.
Deliveroo has posted a whopping 107,117% growth between 2013 and 2016. It’s easily Europe’s fastest growing business but sustaining that kind of growth is not easy.
Almost all high growth technology companies come with a lot of ups and downs and Deliveroo has certainly been through the mill a few times over the past couple of years. I don’t think I have met a co-founder or a management team member who didn’t have some scars and most of these firms will be no different.
So is there anything to learn from their experience? What can management teams and CFOs do to give businesses the tools to react well when times are good, as well as when unexpected bumps occur?
I have always felt like the reaction to the downs better defines the success of the company in the long term. So, here I’ve outlined my top fives considerations to help businesses cope with growing pains and then scale.
Hiring and retention
It’s important to hire quality individuals and retain them. When companies are entering into or are in a growth phase, hiring fast is often the focus. However, too much emphasis on the speed of hiring is often detrimental.
It’s about balance. While it makes sense for companies to get people in quickly in some departments, hiring a sales rep for example – the sooner they are hired, the sooner they can ramp and therefore bring revenue to the company – it’s also about finding the right people that fit within the company culture.
It’s important to get this balance right, the balance in prioritizing hiring with finding the right people versus getting someone in the role quickly. Getting the right employees compounds over time.
It can be thought of like compound interest. If you consider an initial and continual ramp period for your top performers, they are much more impactful to the business in their second and third years, rather than in than their first six months.
Recruiting them is key and retaining them is even more important. In the past, I have been blessed with exceptional HR teams. Years ago, I didn’t see the value in HR but I now believe it is crucial. Finding the right HR lead who can drive recruiting and retention is one of the most important hires the company will make.
Talent management isn’t just at the point of hire, but is ongoing. Most people agree that “A players” hire “A players,” and five excellent engineers can beat a really good team of 50 mediocre ones. Yet many companies still compromise and don’t give the hiring process the weight its due.
Focus on one vertical first and perhaps even a niche
There is often debate about moving into new verticals or horizontals. This is typically done in the spirit of total growth in a company. In my experience, going deep in your current vertical and winning the market allows you to build a much more competitive moat and expand further once you’ve succeeded.
If you look at some of the most successful companies like PayPal, when they started their primary market focus was eBay power users. Once they gained significant market share in this cohort, they were able to expand beyond it.
Another example is OpenTable. It had routine feedback from outsiders to consider moving into online reservations for dentists, florists, you name it. However, OpenTable focused on what it did best and years later it is still the leader for online restaurant reservations and management.
Growth and Cash Management
These are often viewed as opposing forces, however, the conflict can be constructive when there is a balance.
Often companies can get too aggressive on the growth side and their cash burn can get out of control quickly. On the inverse, companies can get too conservative and competitors can overtake them in market share penetration.
Getting a product market fit and unit economics in tact before and during scaling through high growth phases can help normalize growth with cash management. When the unit economics begin to falter, reducing cash burn by slowing down hiring or other expenditures until the economics normalize is necessary.
In the end, cash is always king, but having a thoughtful dialogue on the balance between growth and cash management with consideration of unit economics will provide the best outcome.
Having department goals aligned with key unit economic metrics keeps departments goals more quantified and accountable. Each department head should understand their financial importance to the business. This provides more accountability and financial value in what they bring to the company.
More importantly, when there is alignment of key metrics to measure the business, the dialogue becomes more efficient and objective. The emphasis is more focused on how to improve the business instead of having the dialogue on whether something is not working.
Keeping your cool
Often there are times when businesses will go sideways for a bit; growth will not be where the management expected or key economic metrics may not warrant additional investment. These issues are often a blessing in disguise.
This is the time when companies can take away learnings specific to their short term failures and hopefully build a much more successful company in the longer term. Companies that don’t succeed often fall prey to the emotional fear of failing and objectivity is impacted. Focus on fixing and measuring controllable factors.
Growth can often feel like a rollercoaster. Having the right tools and perspective to go through both the ups and downs is what makes the difference. Aligning the team with agreed objectives and metrics, to drive discussions around optimization of the business, can make or break management teams.
Finding and retaining the best talent is also key; but, giving them opportunities to drive business decisions will build success in the long term. People often talk about the compounding effect of investing. This is no better example than with high quality employees.
Finally, ensuring there is a constructive balance between growth, market penetration and unit economics will put any high growth business on a more secure footing to scale.