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One of the most interesting phenomena I have seen over the last two decades in startups is the fascination with Unicorns. The term emerged at a time when startups worth $1 billion were rare, something only the luckiest of founders would ever glimpse. Now the production of Unicorns is reaching the scale of industrial agriculture.
But founders shouldn’t be looked down on if they don’t have the goal of reaching Unicorn status. In my experience, one of the biggest reasons companies fail is the attempt to grow as fast as possible without taking the time to grow the right way. It’s a tale as old as the tortoise and the hare. In business, who wins the race?
Too much, too fast, too soon
It seems many investors put pressure on businesses to “grow at all costs.” However, we only need to look to WeWork to see what happens when a business grows too quickly without enough substance to support it. WeWork raised billions of dollars renting coworking spaces around the country, and it appeared to be a miracle company. But when it tried to go public, improper management and unsound business practices were revealed, and WeWork fell apart as quickly as it had risen to prominence.
Over the last 20 years, I have seen countless cases like WeWork’s: startups that burst into stardom and then fall apart a year or two later.
So why does this trend occur? Too much growth, too fast and too soon compromises success.
Don’t get me wrong: Quickly building a company without compromising its future is the ideal scenario. But it’s just that: an ideal. It’s not the norm, and it’s not how sustainable growth always occurs.
In 2016, my company was making millions of dollars and growing at the speed of light. With all the growth, I didn’t even ask myself if the underpinnings weren’t right because, on the surface, everything appeared to be going well. When we realized we were missing a key element of our business, we had to cut our employees in half and regroup to build a new product that would sustain us long-term.
It’s all too easy to justify improper judgment and bad business habits by pointing to the massive growth occurring. However, the next thing you know, you will have built a skyscraper on a wobbly foundation, and one day the wind will inevitably come and knock it all down.
Sustainability over speed
The business that builds quickly without a long-term strategy will often lose to the business that builds slowly but strategically, planning every step it takes.
A company should not always go from 20 to 200 employees just because it raised $10 million. Every new hire brought in is an investment, and it’s best to make sure the company is ready for them. If a company hires a new developer at $130,000 a year without a clear plan, and it takes two and a half years for the developer to build the software that will make back $130,000, the company might not be making the best use of its resources. If the company knows exactly what a new developer is going to build and it generates software within the first year, accruing $500,000 in return, then the business can afford to give that developer a raise and hire even more people. That is a scalable business model, and it cannot be achieved if you hire more people simply because you raised more money.
The surest way to create a successful business is to find the smallest repeatable process you can complete that creates value for your customer. Invest all or a substantial majority of your efforts into that process, and once it’s working well, you can begin to add in more layers — increasing pricing, adding customers, bringing on new employees and creating even more value.
More is not always better
A trustworthy sign of growth is capital efficiency — how efficiently a company uses the money it has raised. The company that turns $10 million into $100 million is a healthy, growing company, but that isn’t necessarily true for the one that began with $200 million and is now only making $100 million.
It’s almost always more important to look at long-term sustainability over immediate rewards. If you blow through all of your initial capital trying to become a Unicorn, your business will be walking on a tightrope and at the mercy of your investors. Focusing on capital efficiency gives you room to breathe as you grow slowly but surely.
Lastly, don’t be afraid of shrinking. When we had to cut our employees from 50 to 25, I thought the best path would be to lay off as few employees as possible. In time, those numbers kept dropping until we only had seven employees. If I had cut from 50 to 10 with an eye on the future, I could have offered those 10 employees stability and security, even if we had to work more slowly due to lowered capacity. When we think “more” is always better, it can lead us to make decisions that might not benefit our company and employees in the long run.
Related: 8 Mandates For Growth
Build an engine
Ironically, prioritizing sustainability may be the fastest way to grow. You can build a strong, healthy business and grow quickly. But shrinking and growing are not the metrics we need to worry about. We need to focus on sustainability.
Building a business is like building a car engine. Many people rush to build the engine as fast as possible so they can start driving immediately. But with a shoddily built engine, our car will stall in the middle of the road, leaving us stranded. If we want to build a sustainable business and reach our final destination, we need to take the time to build a proper engine that we know has the power to get us where we want to go.