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Why Safe Growth Is the Real Key to Job Creation

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We hear a lot about job creation and how critical it is to our nation’s economic health and future. But who are America’s job creators? Are they the nation’s richest individuals? Are they big public companies? Hot start-ups? The answer is none of the above. New research shows that almost all net U.S. job creation in recent years came from existing private, high-growth companies.

If we are really going to get serious about job creation, that means doing what’s necessary to create a healthy small business environment, such as encouraging investment in private business through tax incentives, encouraging hiring inside the U.S., making credit readily available, and so forth. But it also means zeroing in on a very important issue that often gets overlooked: growth.

So, what are the big challenges facing the nation’s real job creators?

Too often, businesses grow themselves into trouble. We know that many successful small businesses implode when they attempt to grow too much too quickly. Growth can outstrip people, processes, and controls.

Cash flow management during growth periods is critical, because in many cases growth requires investments in people, technology, supplies, etc., ahead of the receipt of cash from customers. Entrepreneurs have to understand that they may not be able to afford all the available growth. Instead of following the ‘grow or die’ myth, a much better axiom to follow is ‘improve or die.’ Successful entrepreneurs know when to release the growth “gas pedal.” Every private business faces the same challenges as it attempts to grow. Letting up on the growth pedal to give their people, processes, and controls time to catch up. We also found that strategic focus was critical to safely growing. Focusing on doing one thing that lots of customers needed better than the competition equated to big opportunities.

Growth means learning to effectively delegate. For a business to grow, the entrepreneur must grow also. When growth begins, entrepreneurs quickly find that they can do only so much and that they need help from others to properly serve customers. They must evolve from being a doer to a manager of employees and then eventually to a manager of managers (a leader).

This may sound easy, but it isn’t. Most entrepreneurs don’t like to give up control of any aspect of their business. Facing the fact that they can’t do it all on their own and that they must learn to rely on others to complete certain tasks (and not necessarily exactly how they themselves would do them) can be a very hard reality to swallow. Upgrading never ends. The people, processes, structure, and controls needed to manage a business with $1 million of revenue generally do not work for a business with $10 million of revenue. Entrepreneurs often learn the hard way that growth means continual change.

As you grow, the solutions that worked at one level will most likely not work at the next. Inflection points for the companies I’ve studied occurred frequently when they expanded to 10, 25, 50, and 100 employees. When these changes take place, entrepreneurs often realize their hope of having a smooth-running machine is an elusive dream. Successful entrepreneurs and their employees are open to learning and adapting in an incremental, iterative, and experimental fashion.

To get a better handle on growth risks, consider how your strategic space will change as you get bigger. You will probably enter a new competitive space, facing bigger and better competitors than you previously faced. Those new competitors may be better capitalized than you and be able to engage in price competition, driving down your margins.

The good news is that you can minimize this and other big risks by planning for growth, pacing growth, and prioritizing what controls and processes you need to put in place prior to taking on much growth. I call it ‘what can go wrong’ thinking, and entrepreneurs can’t indulge in too much of it.

The big lesson here is that there is no need to reinvent the wheel—entrepreneurs can learn from the experiences of other successful business builders and increase their chances of success. Business is much more than just making money. It is the primary way most people achieve their dream of providing a better life for themselves and their families. But it’s important to remember that growing businesses also have a valuable impact on their customers and communities. These businesses aren’t just job creators. They’re community builders.

About Edward D. Hess

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Edward D. Hess is author of Grow to Greatness: Smart Growth for Entrepreneurial Businesses (Stanford University Press). He is professor of business administration and Batten Executive-in-Residence at the Darden Graduate School of Business, University of Virginia. He is the author of ten books, over 60 cases, and over 60 articles. His work has appeared in over 200 media outlets around the world including CNBC, Fox Business News, Dow Jones Radio, WSJ Radio, MSNBC Radio, NPR, Forbes, Bloomberg, BusinessWeek, CFO magazine, Financial Executive, Journal of Applied Corporate Finance, Big Think, the Washington Post, and Financial Times.

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