Every stage of growth comes with different challenges. Compared to a company with sales of $25 million striving to expand to $100 million, a small business with sales of $500,000 aiming to grow to $5 million faces different operational, financial, and human resource challenges.
That was over 20 years ago, but David Guernsey still recalls those moments with a sense of trepidation.
At the time, Guernsey was planning to take his Guernsey Office Products to a new level of growth. Guernsey Office Products, an office supplies and furniture retailer based in Chantilly, Virginia, then had three stores with annual revenues of $5 million. His goal was to target larger enterprises rather than small businesses. His new strategy was: to stock items at a location with significant influence and sell products online.
Guernsey invested heavily (borrowing $8 million, most of it from banks) to cover the costs of additional storage space, delivery trucks, trailers, and technical infrastructure. He admitted, "I borrowed far more than my net worth at the time. It put a lot of pressure on us, but we needed a more advanced platform to serve more customers and drive the company's growth."
This bold move eventually paid off. Within five years, Guernsey’s company's revenue broke through $25 million, and its current total revenue is as high as $50 million. Guernsey said, "It's very difficult to make large investments all at once before seeing returns. But when you need to grow, [sometimes] you can't 'gradually' do it."
Each stage of growth comes with different challenges. Compared to a company with sales of $25 million striving to expand to $100 million, a small business with sales of $500,000 aiming to grow to $5 million faces different operational, financial, and human resource challenges.
With this in mind, here are some suggestions for enabling businesses to grow during three key stages of their lifecycle.
Growing from $500,000 to $5 million
For small businesses targeting $5 million in sales, the first step is to create a financial roadmap. However, before getting lost in forecasts on Microsoft Excel spreadsheets, be sure to manage your cash flow wisely. Unless you've accumulated substantial reserves, one misstep could leave you unable to pay for next month's inventory and expenses.
Secondly: focus your energy. At this stage, almost every investment (money and time) should be used to refine your product and build a good reputation among clients. Paul Maeder, founder of Highland Capital Partners, a venture capital firm based in Lexington, Massachusetts, stated, "Don't think about PR or large-scale marketing yet. The only people you need to talk to at this stage are customers and potential customers."
Even if you don't plan to grow your company to a new level, you need to find a way to raise funds. If you can't pitch yourself well to potential investors, hire someone who can.
Even if your funding needs aren’t large, now is the time to start building relationships with future financiers. Once credit tightens, these connections will come in handy. Guernsey, who also serves as Vice Chairman of Virginia Commerce Bancorp, pointed out that banks are willing to partner with companies that have the 3Cs—collateral, capacity, and character. In such cases, relying solely on spreadsheets won't win their trust. He said, "If the bank doesn't understand you, they can't 'measure' your capacity or character."
Growing from $5 million to $25 million
As your scale expands, the risks associated with inefficiency increase. For companies striving to reach $25 million in sales, the key to rapid growth is establishing flexible systems.
Even though it may feel like a proper corporation already, it's still necessary to create an employee handbook. Ensure clear rules are established for everything from holidays to daily violations. Maria Pinela, head of Strategic Growth Markets in the U.S. for Ernst & Young, stated, "Their onboarding process should include the employee's first day." Have a lawyer review and approve all internal standards.
Back-office systems are equally important. Currently, QuickBooks may suffice, but a growing company needs an upgradable system that can provide detailed financial reports from any location, allowing you to grow as planned.
If you haven't considered hiring professional management, now is the time. This includes a CEO, a CFO, potentially an HR manager, and a full-time legal advisor. And yes — this means letting go and allowing these executives to work freely.
Growing from $25 million to $100 million
At this stage, your success will depend more on execution than on the product. Think carefully about which industry you belong to and proactively eliminate underperforming product lines, reinvesting in strong ones. Maeder of Highland Capital noted, "This is quite different from companies in the early growth phase, whose focus is narrower; their goal is simply to make the business run successfully."
Although the existing economies of scale (and a great deal of hard work) might be enough to achieve double-digit revenue growth, achieving triple-digit growth may mean taking significant financial risks in equipment, real estate, and markets.
Of course, the required investment amount may far exceed the cash generated by your business or the loan amounts lenders are willing to offer. One solution is to sell stocks to the public. However, this method of financing comes at a cost, so consider carefully before making a decision.
Key reminder: Raising funds in any form means having a clear understanding of how to plan the use of that money; if you can't do that, it's not worth asking.