Underestimating The Cash-Burn Rate
Here’s an all too familiar scenario: Projected revenues start taking off in year five, but it’s only year three, the company is still losing money and it only has 12 months worth of cash in the kitty. Remember: Growth is great, but only if you can survive long enough to watch it kick in. Until then, keep your belt tightened, temper those sales forecasts and make sure customers pay on time.
Misallocating Capital
Once you’ve raised some cash, spending it is all too easy. Too many growing companies end up investing in nonproductive assets, from costly marketing campaigns to fancy new office furniture, while the software they’re selling is still infested with bugs. Best bet: Put a formal system in place whereby any expenditure over a certain amount (say, $100) requires clearance by at least two key people
Going On An Acquisition Spree
Market share is a good thing, and making an acquisition (or perhaps even forming an alliance or joint venture) can be a way of grabbing it. Shooting stars Cisco Systems and Google successfully inhaled scads of targets in the last decade. But then, those behemoths also used their richly priced shares as currency, making the prices they paid seem a lot more attractive. Sadly, mergers and acquisitions on the whole tend to destroy value, be it because the buyer overpaid or the integration flopped. Tread cautiously.
Forgetting The Rules Of Good Customer Service
The first rule is obvious: Don’t be so fixated on winning the next customer that you forget about the ones who already paid and, with any luck, will put in the good word with their friends. But there’s another, less intuitive rule: Don’t be afraid to fire bad customers. These scourges demand lots of service but spend little--or worse, end up not paying at all. (For more on this topic, check out “Should I Fire My Client?”, “Dealing With Deadbeat Customers” and “When Receivables Grow Moss”.)
Refusing To Delegate Authority
Sooner than later, a company will grow beyond the core management team’s ability to micromanage it. But learning to let go is harder than it sounds. “There are lots of people that start companies and do very well,” says Paul Marshall, professor of management at Harvard Business School. “But they haven’t had to share decision-making authority and responsibility, and they find that hard to do.”
Relinquishing Too Much Equity Too Soon
True, most small businesses fail because they are undercapitalized. But selling off a healthy chunk of ownership and control--either to a venture capital firm or in a public offering--isn’t always the answer to fast cash. (For more on this topic, see “The True Cost Of Venture Capital”, “Walk, Don’t Run, To The Equity Markets” and “How To Bag That Bank Loan”.)
Pocketing A Few Perks
It’s tough running a business, and no one works harder than you. Still, you have to battle the urge to put precious growth capital toward that new boat. Investors won’t like it--and employees may doubt your commitment to making their financial dreams (read: stock options) come true.
http://www.forbes.com/2007/05/02/ups-starbucks-walmart-ent-mange-cx_ll_0503growthtraps.html
No comments:
Post a Comment