It’s no secret that most startups fail and the numbers certainly bear that out. According to the U.S. Department of Labor just about half of the companies that begin are lucky to be around five years later. But the difficulties don’t end there. Ten years after a company is founded, less than a third will still be operating.
So why are so many companies teetering on the edge of failure after making it through the early years? In most cases, it has to do with the mistakes made during the growth phase when more often than not wide-eyed entrepreneurs anxious to keep building on early successes become too ambitious and push the envelope more than they should.
Some of the more critical mistakes that some make include the following:
Hiring without reason or forethought
Meeting the demands of a rapidly growing company doesn’t necessarily require that you begin hiring staff right away without adhering to certain objectives and criteria in the process. In the long run it can lead to much bigger problems and can actually prevent you from growing efficiently.
Principals should conduct several interviews with job candidates and include others in senior management in the process. Time should be taken to check references and make sure their background, experience and education is legitimate.
Another mistake many owners make is hiring people who think like they do. Strong individuals want consensus but it shouldn’t come as a result of fostering a culture where no one can disagree. It should be important to create an environment that encourages thoughtful opinions that, although might be contrary to what the bosses are thinking, in the long run can be invaluable to a growing company.
Failing to hold adequate reserves
In order to keep growing, businesses need to spend money and sometime lots of it. Planning ahead for the unexpected is critical and cash reserves are vital in those circumstances when there is a downturn and a company needs to ride out difficulties and survive. A well-run and managed company will make sure resources are on hand in the event of such an occurrence even at the expense of tamping down on aspiring growth plans.
Too anxious to make acquisitions
With many private companies up for sale, there may be some growth opportunities for younger and emerging firms. There may be something to acquiring a company and it can create quite a stir pursuing a deal, however, it’s important that the focus remain on the existing business. Acquiring another company might be a great thing to do but without the proper due diligence it could result in creating a mountain of debt, tying up too much cash upfront as well as difficulties in integrating the new business.
Overestimating the need for additional space
Additional space can be an important need for growing companies, but commercial space can be expensive. Many companies can sometimes put themselves in a bind by overestimating the space they will require within the framework of their lease. They also need to be careful about escalation clauses that are part of the complexities of a commercial lease. In general, rent usually end up costing more than most entrepreneurs have budgeted for.
All told, success is a great motivator but sometimes it can cause entrepreneurs to make decisions that could impact growth in ways they never considered. Reaching this stage is something to be proud of and the anticipation of taking things to the next level and accelerating growth further can be exhilarating. But companies need to avoid being overly confident as that is usually when missteps will occur.