Startup Growth On Purpose Right-Size Your New Venture
Startup Growth on Purpose: Do all entrepreneurs want to grow fast and/or big?
The answer is no.
There are many ways to consider growth and scale. That is because growth is not necessarily only in terms of financial results or volume. Numbers are only one way to account for growth, even though the habitual ways to measure performance are terms like:
- Return on Investment
- Revenue Growth
- Profits
- Assets
- Market Share
- Distribution
- Employees
- Locations.
Not all entrepreneurs seek to become Unicorns (a company with a billion dollar equity valuation), since many who seek funding from venture capitalists find that are expected to scale fast so that equity values grow fast, largely to the benefit of the investors. Scaling implies that a business will increase revenue without a proportional increase in resources. On the other hand, organic growth tends to add revenue while at the same time tends to involve increasing resources at a not dissimilar rate.
Conventional Startup Wisdom
Conventional startup wisdom suggests that new ventures must grow fast and/or big. There are many situations where a startup will need fast traction and scale. It is likely to be the case with hi-tech or new ventures that have production processes that require massive capital investment.
This is not true for the vast majority of startups (only 1 per cent of startups have VC investment), but the assumption is brought to bear on far too many aspiring entrepreneurs. In any event, according to the US Bureau of Labor Statistics, a fifth of all startups fail in their first year, and 65% will during their first ten years. The heavy emphasis placed on startups to grow is pervasive, and while ‘cash is king’ is also part of every entrepreneur’s consciousness, borrowing money or using other people’s money, places an invisible, but heavy burden on all new ventures.
The focus on growth is a consequence of the financialization of business, which is described by Investopedia as, ” the increase in size and importance of a country’s financial sector relative to its overall economy. A shift away from industrial capitalism, financialization touches virtually every aspect of modern life, from how companies make decisions about jobs to how everyday people plan their lives, from the homes they buy to how they save for retirement”.
‘Growth-itis’ is ingrained in entrepreneurship that is deep in the culture of management. Describing MBA education, Rana Foroohar says in her 2016 book, Maker and Takers: How Wall Street Has Destroyed Main Street1, that it “is basically an education in finance…churning out followers who learn how to run firms by the numbers”. Talking about maximizing value, she asks, “but for whom?” Startup growth on purpose involves very careful consideration of her question.
Quality or Quantity in Startup Growth on Purpose
Purpose driven startups know that growth can be in terms of qualitative rather than, or as much as, quantitative measures. For example, qualitative growth can be in terms of:
- Purpose Achievement
- Customer Relationships
- Employer Reputation
- Staff Development
- Community Contribution
- Sector role
- Eco-development
- Research Innovation.
As an example, a couple of years after starting a professional services business, we instituted an annual user conference—the aim was to reinforce client relations. From that point of view, we considered it a success. However, what we learned was that it also created an almost independent community. The ‘members’ of the community (clients) started communicating between themselves, as much as with our company; relationships developed.
This ‘growth’ was, we considered, to be as important as growth in our financial performance. Though unseen, it probably contributed to that too. We set financial growth targets and measured them monthly. Likewise, we tracked our qualitative performance with similar rigor.
Of course, maintaining positive cash flow is essential to startup survival, so sales efforts cannot be neglected, growth or no growth. However, if the founders want the startup to flourish, building the substance of the company requires more than good financials. Reputation, relationships and respect are vital—among all stakeholders, beginning with those close at hand: employees, customers and the community. This involves a company-wide sense of the collective way that people make and are the business.
Startup Growth on Purpose Can Be Small
Startup growth on purpose can be small and productive. Many, though not all, MBA programs with entrepreneurship courses would have you believe that all startups should aim at exponential growth. On the other hand, startup growth on purpose can be small.
In the natural world, tiny bees create systems whose intense purpose deliver dazzling outcomes, year after year. Bees in the hive don’t compete with one another and relationships between the queen, forager and house bees ensure survival and honey to feed themselves and their young in winter. One and bit acres is needed for each hive, but if it becomes too crowded, that’s when a bunch of them swarm off to find a new home. They don’t just go on multiplying. They purposefully accept the system they inhabit.
Likewise, the founders of a purposeful startup might decide to stay small, by their own definition. That definition might be through keeping operations within a particular geographic area; limiting employee numbers; avoiding the stress of scaling; not seeking outside shareholders; aiming to thrive without loss of control; mitigating risk; maintaining controllable operating costs; keeping close to customers; reaction to big corporation employment; or building a well-defined and sustainable company culture. Many different reasons—and chances of successfully implementing a well-defined purpose beyond profit may simply be easier by staying small.
Here are reviews of some books are likely to help why and how to right-size your startup:
- Small is Beautiful: a Study of Economics as if People Mattered
- Small Giants: Companies That Choose to Be Great Instead of Big
- Reimagining Capitalism in a World on Fire
- Saving Capitalism: For the Many, Not the Few
- Rewriting the Rules of the American Economy.
Notes:
- Rana Foroohar describes Makers as the people, companies, and ideas that create real economic growth who have become servants to Takers, those that use our dysfunctional market system mainly to enrich themselves rather than society at large.
