The problem with most entrepreneurs and CEOs is they’re growth junkies. Adrenaline is their drug of choice. A lot of them openly acknowledge it: They’ve never met a deal they didn’t like.
That’s where they get into trouble: being irresponsible about growth. It’s their biggest challenge. One man kept coming to my peer advisory group every month and saying, “I’ve got to grow, grow, grow.” He was in the kind of business that needed a lot of working capital to grow. He didn’t understand that growth requires cash to fund that working capital.
Need to Pace It
Our peer advisory group kept telling him, “You don’t have the capital base to grow. You need to be more measured about this. You have to pace it. It’s going to take longer than you think.”
He wouldn’t listen. “No, no, no, you guys don’t understand,” he said. “I’ve got to grow, grow, grow, grow.” That went on for six months.
He came to the following meeting and said, “It was a real bad month. I filed for corporate and personal bankruptcy.”
Slammed Into a Wall
He had slammed into a wall that fast.
Another CEO, on the other hand, listened to reason. He came to the group $11 million in debt. He also had several million dollars of negative equity in his company. Our group went to work on him right away.
We told him: “You are not going to buy another machine. Read my lips. No more debt.” Fortunately, he accepted the notion of responsible growth. I helped him form an advisory board full of tough-minded people he was willing to listen to.
The result: He sold his company last year for about $10 million. That was a $25 million turnaround over four or five years.
Ways to Crash Your Company
An article entitled “6 Classic Ways to Crash Your Company,” in Inc. magazine, describes economist Gary Kunkle’s survey of 600 fast-growing companies in Pennsylvania. Kunkle found many of these companies face the same challenges. One major issue is they run out of money.
He found that as companies land bigger contracts, they need to put larger sums of cash on the line to buy equipment and staff long before they start sending out bills. “Companies often actually become less liquid as they grow,” Kunkle told Inc. “They grow themselves right into bankruptcy.”
The best strategy, Kunkle said, is to manage growth so it can be dealt with in small chunks rather than big ones.
Responsibility Comes with Growth.
You owe it to people who depend on you as a leader to grow in a sustainable way that creates long-term value.
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