201511.06
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How to Handle Rapid Growth in Your Silicon Valley Business

Here in the Silicon Valley, startups are commonplace. In the beginning stages of a startup, there is always uncertainty about how the product or service will be received in the marketplace. Of course, it is every entrepreneur’s dream that the business will grow and prosper. However, if the growth comes too quickly and the company is not properly prepared for it, the dream can quickly turn into a nightmare.

To effectively handle the challenges of rapid business growth, it is essential to plan for it ahead of time. Otherwise, it can be similar to trying to reconfigure a car engine while the vehicle is racing down the road at 70 MPH. Here are some important considerations when dealing with the challenges of rapid growth in your organization:

Understand Why You Are Growing Faster Than Expected

A spike in sales can be due to a number of factors, some are indicators of long-term growth, while others may only be temporary. For example, if you own a roofing company in San Jose and a major wind/rain storm sweeps through the Bay Area, you may suddenly have thousands of area homeowners with storm damage. Such an occurrence will undoubtedly help your business, but probably only for the next several months.

This could also happen with a hot product that is flying off the shelves because it received some positive press. But once it’s been out of the news for a while, demand starts to wane. The bottom line is before you take steps to deal with rapid business growth, you need to fully understand why it is happening; otherwise, you may end up with a long-term fix for a short-term challenge, or vice versa.

Always Put Customers First

Customers are at the heart of every business; they are the ones who pay your bills and keep your lights on. When a company starts growing fast, it is easy to lose sight of the need to provide exceptional service to each customer. A mindset can begin to develop that because business is booming, you will have plenty of customers regardless of how you treat them.

When customer service diminishes and customers start to complain, it can quickly damage the reputation of the company. In today’s digital age, customers can let their feelings be known on social media and poor online reviews, which can be seen by the whole world. Before you open up for business, there should be plans in place for handling customer growth and what steps will be taken to maintain a high level of service. Whatever stage of growth your company is in, you must do everything possible to ensure your customers are taken care of.

Assess and Address Staffing Needs

In keeping with your commitment to customer service, it is important to evaluate how much help you need to keep your customers happy. Staffing for growth spikes can be a bit tricky, however. This goes back to the first point about whether your growth is temporary, permanent, or seasonal. The first thing to do is look at how you can shift responsibilities within the current staff, offer overtime to existing employees, etc. to meet demand. Much of your needs could be resolved by optimizing the efficiency of your operation. If you decide you need additional help, the cautious approach would be to add temporary staff for now and/or look at areas of your operation that can be outsourced. Once the growth is sustained for a period of time, then you can look at hiring additional employees.

Evaluate System and Infrastructure Enhancements

Rapid growth often means you suddenly have inadequate telephone systems, crashing websites and other infrastructure issues. These problems will inevitably lead to poor customer service. For this reason, you should have the ability to resolve system issues quickly. When setting up your systems, it is important to have a plan in place to enable you to make rapid capacity upgrades when business increases. For some businesses, it makes sense to hire an IT consultant to help plan for these unexpected growth spikes.

Keep a Close Eye on Cash Flow

When an enterprise starts growing quickly, there is a tendency to loosen up the purse strings and not worry so much about cash on hand. This could be a big mistake, however; particularly if you operate with your own working capital while waiting for customers/clients to pay you. For example, what happens when you receive a large order from a regular client that requires you to take on debt to fulfill? If your client were to abruptly cancel the order, you could have problems meeting payroll and paying your other bills.

If you are in the kind of business that works with larger commercial customers – famous companies in Palo Alto like Hewlett Packard or Facebook, perhaps – your business attorney should help you draft ironclad agreements to protect you from such scenarios. Aside from that, you may also need to speak with a banker about a larger revolving line of credit to ensure you have the financial capacity to accommodate a spike in growth. Just make sure you do not use the additional line of credit to overextend yourself.

Be Cautious with Potential Investors and Acquirers

A growing business in Silicon Valley is likely to attract plenty of interest from investors or even potential acquirers. And while the increased interest is flattering, be careful not to spend too much time exploring bids that often do not result in a fruitful partnership. When you are in a growth phase, the focus should be on addressing your needs and staying on target toward your long-term goals. This, more than anything else, will enhance the value of the company and make it more attractive when it comes time to take on a viable investor or partner.

Jeffrey Miller is a Palo Alto business attorney and member of the Palo Alto Area Bar Association (PAABA). He provides skilled guidance on all legal matters for growing Bay Area businesses. To help prepare your business for rapid growth, call attorney Jeff Miller today at (650) 321-0410 or email him at jeff@jeffmillerlaw.com.