Four Challenges of Hypergrowth

This is the unedited version of my December 5, 2012 Blog Post which was published in the Washington Business Journal.

I’m really thrilled to start writing a weekly Blog post for the Washington Business Journal as of today.  Thank you Roger Hughlett and Alex Orfinger, Publisher, for the opportunity to express my opinions and thoughts about a wide range of business ideas and topics.

As a novice and inconsistent blogger, I now have a “boss” and weekly deadline, so there are no more excuses NOT to post consistently.  And to have the WBJ platform distribute my content?! What more could I ask for?

I’ll be blogging on leadership, entrepreneurship, technology (all kinds), strategy, private equity, venture capital, international business (particularly in China and Brazil), and probably a bunch of other random stuff.

Last week I had the pleasure, along with Devin Schain of CampusEd and Mark Richardson of CASE Building and Design, of speaking to Professor Andrew J. Sherman, Esq.’s University of Maryland class on Entrepreneurship.  The topic: Challenges to Growing Your Business.

I co-founded and ran CyberRep, Inc., a call center/customer relationship management business which, over a 12 year period,  grew from 0 – 2200 employees and $0 – $80 million in revenues.  So I broke down the types of challenges we faced into 4 categories:  1. Keeping Clients Happy, 2. Keeping the Culture Pure, 3. People Issues, and 4. Personal Growth Challenges.  These 4 types of challenges are all integrated and interdependent with each other.

Keeping Clients Happy – When you are small, it’s relatively easy to focus on thrilling your clients.  As you hypergrow, you start working on lots of other very important things in addition to client matters.  Things like capital raising, shareholder matters, hiring and staffing, technology issues, etc. start to command your attention.  It’s natural.  As a hypergrowth company, we had our share of growing pains and glitches especially with people, processes, and even technology.  What was key for us was that “Client goals are our goals” was our #2 corporate core value and “Client satisfaction” was one of our “4 Pillars of Success” so we were able to ingrain this client-first thinking into our culture.  When hypergrowing, it’s critical to never forget who signs your paycheck – your clients!

Keeping the Culture Pure – As CEO, my job was to establish, evangelize, and enforce the Company culture.  As we  grew, and acquired 3 companies, and hired people from competitors and companies which didn’t have our company’s value set, we risked diluting our culture.  When a company loses its culture, it will eventually die.  We kept the culture pure by repeatedly dispatching our senior leadership team into all of our offices (we had 10 in 6 states) to evangelize like crazy.  We lived by our “Top 10” core values and developed our own lingo and reward systems to train all associates on what was important to the Company.  Very tedious, grinding work – very challenging, but it did pay off.  Our leadership team studied Jack Welch and the GE way, and what GE was doing at Crotonville, and we were inspired by their commitment to nonstop repetition in inculcating culture into the organization.

People – Dealing with people issues is one of the toughest parts of running a business.  As you grow, your people necessarily must grow…or they will be left behind or worse.  I would say that less than 1/3 of our first tier of management were able to “keep up” with company growth and client demands as we grew from $5 million – $20 million in revenue.  We saw the Peter Principle at work for dozens of our managers.  It pained me to have to let some of them go, especially the ones who had been with us from early on.  Others just stayed in their jobs or grew a little more slowly than the Company.  The bottom line here was not sacrificing quality or settling for less than excellent performance.  So that meant lots of training, reorganizing the org chart appropriately and often, and being able to recruit new talent for the right positions.  The main challenge was maintaining focus on what was best for the Company, and putting those needs first and ahead of any one team member.

Personal Growth Challenges – This set of challenges may have been the most trying of all for me.  At each stage of our growth, our executive team and I were all in uncharted territory.  We’d never grown a company this fast or this way.  As startups hypergrow, the Alpha Male or Female startup entrepreneur has to develop into a professional executive.  I have seen many fail at this.  So, I had to make the transition from manager to leader, and I had to develop soft skills and become more diplomatic.  The realization that my decisions could affect 2200 families was another eye opener, and I was forced to deal with the psychology around that fact.  Also, as our company progressed, we had to all become more thoughtful, analytical, and process-oriented.  Company and CEO must both face this reality of “growing up.”  The challenges are too many to enumerate here but these were just some highlights.

So that ends my inaugural WBJ blog post.  Please comment or email me your thoughts and experience.  I’d love to hear of your personal experiences and challenges in hypergrowing your company.  Thanks for reading!

Tien Wong is a serial entrepreneur and private investor.  He is CEO of Lore Systems, Inc. an enterprise network engineering firm specializing in cloud computing and network infrastructure for commercial, nonprofit, and government clients.  He also heads Opus8, an investment and strategic advisory firm.  His Twitter handle is @tienwong and the web address for his blog “Winning Ideas – On Leadership and Hypergrowth in the Entrepreneurial Economy” is tienwong.wordpress.com.

Scaling a Hypergrowth Enterprise – Part 5 of 5 (Capital)

This is the 5th and final installment in my 5-part series on the five elements of Elements of Scaling a hypergrowth enterprise.  I was the co-founder and CEO of CyberRep, a hypergrowth CRM and call center enterprise which grew annual revenues from $500,000 to over $1.6 billion over a 17 year period.   That’s revenue growth of 320,000% (3200x).

So what are the 5 elements of scaling a hypergrowth company?  Part 1 of this series talks about People, Part 2 discusses Culture, Part 3 examines Scalable Customers, and Part 4 delves into Process.  The 5th element is Capital, which is the necessary fuel that every hypergrowth company must have.

While many startups can be bootstrapped with limited capital, the Hypergrowth Enterprise absolutely needs capital.  In order to put in place the foundation for hypergrowth, you need the money to build and perfect your product or service, to hire your awesome talent, and for working capital as you book revenue.

Two Essentials for Raising money are to 1.  Raise money from a Partner, not just an investor and 2.  Raise more than you need, but not too much.

THE INVESTOR PARTNER

To fuel our growth, we raised $20 million in mezzanine capital (subordinated debt with warrants) and $1 million in equity from one partner, Allied Capital, a Washington, DC-based, publicly traded business developement company (BDC).  We did 3 separate rounds over a 4 year period for expansion of facilities, working capital, and the acquisition of 2 complementary targets.  We had multiple term sheets from VCs, mezz investors, and private equity firms.  We chose Allied because, in our opinion, they were more than a capital source, they were a Partner.

A Partner has Deep Pockets – Our partner had a $5 billion portfolio with an average deal size north of $20 million.  While we only raised $4 million in our initial round, we knew we would need to go back to the investor for more money as we grew.  Therefore, we needed a partner who woud readily put more capital into our business.  Raising money is VERY time consuming and disruptive to your business, so by having a deep-pocketed Partner who could fund additional rounds quickly, we avoided having to spend tons of time shopping for new investors for our 2nd and 3rd rounds of funding.

A Partner Understands Your Space – Having made numerous investments in the business services and information services space, including a company directly in our space, our partner brought to us expertise and experience which, inside and outside of the boardroom, proved to be very valuable.  If your investor knows your space deeply, they won’t waste your time with stupid questions and uninformed opinions. Instead, they can focus on the nuances of your industry and add true value.

A Partner Has Operational Experience – Our partner owned outright many of the companies in their investment portfolio. As the owner of these businesses, they had an operational focus on all of their portfolio companies including ours. This was invaluable to us, as we were quite inexperienced and needed all the help and guidance we could get. Too many professional investors have no operating experience, and have never had to hire people, fire people, make a payroll, or close a sale.  Lack of practical experence puts these investors at a disadvantage and, worse, the advice they give you could put you out of business!  Conversely, professional investors who have started and built companies are the best kinds of partners to have because they can share their knowledge and experience with you. They know firsthand how super hard it is to build a business from zero, and they can relate better to you.

HOW MUCH MONEY SHOULD YOU RAISE?

Raise more than you need, but not too much.  What do I mean by this? Whatever amount you think you need to raise, raise a little more.  I know I am generalizing, but in the VAST majority of requests I see, the entrepreneur does not ask for enough money.  Who knows why.  Maybe she’s trying to minimize dilution, or maybe she thinks this current round gets her to a milestone where she can get a higher valuation with the next round.

Regardless, the key thing to keep in mind is that capital is the FUEL for your growth.  If you’re driving from New York City to DC, do you fuel up your car every 50 miles, or do you put enough fuel in your tank to make the entire trip?  Same thing with raising money for your growth.  Be less concerned about dilution and equity give-up and more concerned about having the fuel to reach your destination.  Raising money is a big distraction from company operations, and it’s a real time killer.  Founders need to be focused on wowing their customers and building an amazing team, NOT being in constant fundraising mode.

So how much do you really need?  Think through your scenarios, be conservative on your projections (sales always take longer than you think), and get advice from seasoned pros and advisers as to the appropriate amount.

As for raising TOO MUCH money, this is also a problem.  Why?  Because having the security of a fat bank account can make a startup SOFT and too comfortable. They lose their edge, the bootstrap mentality which is necessary for creativity, scrappiness, and resourcefulness.  Look at all the Dot Com failures that raised too much money, and then wasted it on pricey office space, expensive furniture, ridiculous marketing, etc. because they couldn’t find a better use for that precious resource.  They got soft, then couldn’t be self sufficient when the VC market dried up.

So….raise more money than you need, but not too much.

Thanks very much for reading.  I hope this 5-part series was informative.  What do you think?  I’d love your feedback and thoughts, so please Comment below…and please sign up for my Blog too!  (See the Signup box on the sidebar of my Home Page)

Featured image courtesy of Asthma Helper licensed via creative commons.

Scaling a Hypergrowth Enterprise – Part 4 (Process)

This is the 4th in a series of Posts on the five elements of scaling a hypergrowth enterprise.

A “ONE IN A MILLION” HYPERGROWTH STORY

I was the co-founder and CEO of CyberRep, a CRM and call center company which grew revenues nearly 160x (16,000%) to over $80 million over a 9 year period.  In the 8 years since we sold CyberRep, the organization has grown an additional 20x (2000%) to over $1.6 billion in annual revenues.  Yes, that’s “billion” with a “B.” So, over a 17 year period, this enterprise grew 3200x, or 320,000%.  I’m not a business historian or a statistician, but I would bet that these numbers would put our little startup from 1992 in the “better than one in a million” category of organizations that have experienced this level of growth.

In Part 1 of this series, I talked about People as the first of 5 key elements for scaling a hypergrowth company.  In Part 2 of this series, we discussed Culture, and in Part 3, we examined Scalable Customers. The fourth key element in scaling a hypergrowth enterprise is Process.

THE BENEFITS OF PROCESS

A critical success factor in our ability to grow the business was our commitment to mapping and implementing all of our key business processes.  The 3 key benefits to this were:  1.  We were able to dissect HOW we were doing certain things, and thereby make improvements along the way (process engineering, in essence) 2.  We were now able to “cookie cut” or repeat business processes that were vitally important to our business and our customers (improved business operations), and 3.  We minimized errors and were more consistent in our service delivery (happy customers!).

We didn’t get bogged down in the “flavor” of process engineering or documentation, a la TQM, ISO, or Six Sigma.  We just did the best we could, got them down on paper, trained our people, and put in place measurements to monitor our adherence to the processes.

You may think you are too small to create processes for everything.  In fact, this may even seem to be a waste of time for a startup that has limited resources and “other” more important priorities.  But the simple fact is that every organization, whether a startup or Fortune 100 company, will benefit from developing and implementing SOME key processes.  As a company grows, it becomes imperative to document more and more proceses in order to establish a firm foundation for hypergrowth.

THE “PROCESS PROCESS” – THE WHAT AND THE HOW

At my company, we documented and implemented close to 200 different KEY business processes.  This was a very time consuming task, but once completed, maintaining and adding to our library was relatively easy.  We had processes for things such as business acceptance, hiring, internal communications, various types of training, employee suggestions, innovation, client reviews, different kinds of reporting, and maintaining & upgrading IT and telecom systems, for example.  We even had a process for developing and rolling out processes, the “process process.”

Who’s responsible for the process process?  We were lucky in that our COO was a TQM expert and a trained process engineer, so he owned the process process.  I would suggest that a C-level player in your organization take ownership for sure.  The process process is so critical to winning that it deserves C-level attention and sponsorship.

We assigned a process champion for each process, who was responsible for gathering the information and procedures, as well as getting buy in from the people who would be most affected by the process, e.g. the people who had to follow the process.  I do NOT recommend having one person create processes in a vacuum because the most difficult thing about doing processes is NOT the documentation.  It’s the actual implementation, where you put theory into practice. Where people are involved, the easiest way to gain adoption is to have a cross-section of people involved in all aspects of the planning and implementation of each process.

Do it, Implement It, and Live it.  In order to make the process process work, you need to be serious and consistent about your commitment to it.  Pay especially close attention to the implementation.  Keep monitoring and measuring for the first 60 days or so to insure compliance.  And live it!  When your team sees its top leaders embracing this, or any initiative for that matter, it becomes ingrained into the organization’s culture, and becomes a matter of individual, team, and corporate habit.  And a funny thing will happen:  the discipline that your team puts into the process process will lead to hypergrowth, as your existing scalable clients grow, and your business operations run more smoothly.

Thanks very much for reading.  Please tell me what you think.  How do you see your organization getting more disciplined about the process process?  Which specific processes you have had success or challenges with implementing?  What are your ideas on how a company can improve its “process process”?

I’d love your feedback and thoughts, so please Comment below…and please sign up for my Blog too!  (See the Signup box on the sidebar of my Home Page)

Scaling a Hypergrowth Enterprise – Part 3 (Scalable Customers)

This is the third in a series of Posts on scaling a hypergrowth enterprise.  I was the co-founder and CEO of CyberRep, a CRM and call center company which grew revenues nearly 160x (16,000%) to over $80 million over a 9 year period.  In Part 1 of this series, I talked about People as the first of 5 key elements for scaling a hypergrowth company, the other four being Culture, Scalable Customers, Process, and Capital.  I examined Culture in Part 2 of this series, and today we will discuss the 3rd element, Scalable Customers.

SCALABE CUSTOMERS

All customers are NOT equal.  Some are much better fits for your company than others, in terms of how they treat you, their level of dependency on your services, and the degree of difficulty in servicing them. You want to serve customers who are growing fast and who will have more and more needs as they themselves grow.  A “scalable customer” is one which grows and takes you along for the ride.

Partner Mentality – The best kinds of customers take a partnership approach to your relationship (as opposed to a vendor-vendee mentality).  They rely on you for true “value add” solutions that go beyond just providing the bare minimum of what they need.  They rely on you and have a high degree of dependency.  These kinds of customers will continue expanding their scope of business with you, as they grow.  Note:  An added benefit of a customer with a partner mentality is that when things get rocky (and they inevitably will from time to time), they will be more apt to work through the issues with you, since you are a valued “partner” and not just another vendor.

Customers who grow fast – Try and find customers who are in hypergrowth mode themselves.  Whether they are in hot market segments or expanding via acquisition, these customers need you the most because they have challenges supporting their growth.  For example, my company supported Nextel and Microsoft (MSN) in the early 2000s when both companies’ user bases were exploding.  The more customers they added, the more customer service they needed, and the better we performed, the more business they gave us. They expanded astronomically with us.

Know when to say “No” to revenue – It hurts to turn away revenue, BUT it’s required if you want to build a hypergrowth company.  Saying “no” is really tough.  It is tempting to want to do any kind of work and take on more than you can handle, or to take on a client that is not “scalable,” but you have to stay disciplined in your business acceptance.  By pursuing the revenue YOU want, and focusing only on clients who will grow with your company, you can marshal your scarce delivery and other resources on becoming an expert at your craft and improving your service offerings with these scalable customers.

Thanks very much for reading.  I’d love your feedback and thoughts, so please Comment below…and please sign up for my Blog too!  (See the Signup box on the sidebar of my Home Page)

Scaling a Hypergrowth Enterprise – Part 2 (Culture)

This Post is the second of a series of posts on the topic of scaling a hypergrowth enterprise. My former company, CyberRep, grew from $550,000 to over $80 million in annual revenue over a 9 year span.  In Part 1 of this series, I talked about People as the first of 5 key elements for scaling a hypergrowth company, the other four being Culture, Scalable Customers, Process, and Capital.  Today, let’s examine Culture.

CULTURE

Culture is the company’s DNA.  It’s the genetic code which governs how the business is built, how customers are acquired and services, how employees are managed and developed, what core values matter, etc.  We sought to build a culture of hypergrowth, opportunism, speed, and flexibility. This was integrated into our “Top Ten” corporate core value set and our “Four Pillars of Success” which I will discuss in future posts.

When should a Culture be established? – Whether you’re starting a new business, a division, group, or team, it’s critical that Culture be established at the very beginning. Why? Because, it’s always easier for new hires to fit into an existing culture, than to change a group’s culture once they are operating.  People hate or fear change.  It’s for this reason that so many M&A deals fail.  Buyers are unable to impose their new culture on the legacy team, so integration is never fully realized and dysfunction sets in, but that’s a topic for another day.

Hypergrowth – It may seem tautological that scaling a hypergrowth enterprise requires a culture of hypergrowth.  Well, that’s right.  Our culture was focused on our “Four Pillars of Success”:  Client Satisfaction, Profitability, Revenue Growth, and Associate Satisfaction. These pillars were interdependent, and our leadership team evangelized the focus on these objectives, including REVENUE GROWTH, on a 24/7 basis.  Our objective was to grow via new customer acquisition, but more importantly, via  our existing client base by expanding current offerings, cross-selling new services, and thrilling the heck out of our them.  Our sales team, client service team, and operations teams formally reported in on their progress on a weekly basis.  We held everyone accountable. By sending a clear, consistent and constant message of hypergrowth, the focus on revenue became a daily responsibility of EVERY associate, and it was was incorporated into our company’s DNA.

Opportunism – In order for a company to get into hypergrowth mode, it MUST be able to identify or create new opportunities. Opportunism is a highly entrepreneurial trait.  A company needs to nurture and support creativity and risk taking in order to establish an opportunistic culture.  While it is very important to focus on key objectives, you have to also keep your eyes open for those windows of opportunity that may open.  This could be something a client needs which you do not currently offer, or perhaps a great acquisition, or even a new line of business.  Keeping a pulse on client requirements, and the market as a whole is crucial.  But the key thing here for hypergrowth enterprises is to keep fostering that culture of opportunism, creativity and risk taking, and letting your smart people come up with great ideas on which you can then capitalize.

Speed and Flexibility – Speed kills.  And so does flexibility.  The big advantage of small organizations is that they are more nimble and responsive that the big guys, and therefore they can grab more market share by doing things that larger and more inflexible competitors can’t do.  And, believe me, customers do appreciate this!  It can be tempting to fall into the trap of wanting to “cookie cut” a product or service offering, and then resist customizing it to a particular client’s specifications.  If you want to create a hypergrowth business, don’t fall into this trap.  For service companies, especially, not being flexible is risky for a bunch of reasons:  client dissatisfaction, revenue loss, lost opportunities, etc.  In our experience, by jumping through hoops for clients and delivering faster and better than our larger competitors, we grew astronomically, not just with these clients, but with others who had similar needs.  Again, it’s up to leadership to create and evangelize this culture of speed and flexibility through any means possible.  So many successful and FLEXIBLE hypergrowth companies have pivoted and morphed their business models into hypergrowth mode successfully, Facebook, Apple, and even Groupon and Living Social, being examples.

Business is Darwinian, and Charles Darwin himself said that it is the “adaptable,” not the strongest or smartest, who will survive:

“It is not the strongest of the species that survies, nor the most intelligent that survives.  It is the one that is most adaptable to change.” – Charles Darwin

Part 3 of this series will address “Scalable Customers” as the thrid essential ingredient in scaling a hypergrowth enterprise.

Thank you for reading.  I’d love your thoughts, so please Comment below…and please sign up for my Blog too!  (See the Signup box on the sidebar of my Home Page)

Scaling a Hypergrowth Enterprise – Part 1 (People)

Each January for the past 5 years, I have had the privilege of presenting on “Scaling a Fast Growth Enterprise” to a group of MBA students who attend a 3-day “Start Up Bootcamp” run by John May of New Vantage Group and Tim Meyers of Capital Trust Ventures.  Students come from all over the country including UVA Darden, UMD Smith, U Michigan, Duke Fuqua, and others.

This Post is the first of a series of posts on the topic of scaling a hypergrowth company.  At CyberRep, we were able to grow our top line revenue from $550,000 to $22.5 million in 5 years. We then grew from $22.5 million to over $80 million in the subsequent 4 years. In retrospect, there were FIVE KEY ELEMENTS that contributed to our ability to grow so rapidly while maintaining high degrees of both client satisfaction and retention, as well as employee morale and retention.

These 5 elements are:  People, Culture, Scalable Customers, Process, and Capital.  In these next few posts, I will explain in more detail my thoughts on each of these key elements to scaling a hypergrowth enterprise.

PEOPLE

Everything starts with people, no matter what kind of business you are in. Success begins and ends with getting the right people on Jim Collins’ proverbial bus.

Hiring – We look for 4 key characteristics in our people:  Integrity, Passion, Energy, and Execution capability.  In short, we want players who have high integrity, love their work (because passion is authentic and infectious), have huge reserves of energy (because all hypergrowth organizations require personal and group energy), and folks who can get the job done (critical for thrilling clients).

2 more important traits – flexibilty and resourcefulness.  We need staff who are flexible because plans change in a highly dynamic environment.  Further, since capital and human resources tend to be scarce in organizations which are stretched thin to support rapid growth, we need people who are resourceful and can do more with less.

Staff for the present but keep the future in mind – Every small and growing organization wants to hire the big guns, the heavy hitters whom you may not need right now, but whom you will surely need down the road.  However, you need to focus on the present tasks at hand, so it’s more important to get the best people for the job NOW, than it is to hire for that “future” position prematurely.  Predicting growth is very difficult, so staffing plans are seldom at an “optimal” level.  You will always be overstaffed or understaffed, depending on where your company is in its growth curve.  The key is to make sure you take care of today’s business while keeping in mind the future potential for personal growth of your new hires.  Not everyone will keep growing as the company grows, but that does not mean these folks can’t make important contributions.

Can your people adapt as the company grows?  Every team consists of diverse groups of generalists as well as specialists.  In early stage companies, there is a greater need for utility players, a.k.a. Generalists.  As companies grow, they start to need Specialists to fill specific roles.  The faster they grow, the greater the need for specialty positions.  Can your generalists make the transition?  Do they have the personality, ego sublimation, people skills, and technical expertise to transition, if necessary?  These are key questions which leaders face when hiring and developing their talent in hypergrowth companies.  In my experience, most generalists can’t make this difficult transition and are often left behind as a company grows.  I think it’s important for top leaders of hypergrowth companies to be cognizant of this transition risk and try to mitigate it by providing training and development opportunities to their A Players.

In the coming days, I will talk about the other 4 elements in scaling a hypergrowth enterprise:  Culture, Scalable Customers, Process and Capital.