Growing Smart (Part I)

Posted on | May 12, 2010 | 1 Comment

NECESSARY CHAOS

In almost every start up company I have worked with, there is sense of chaos that pervades the organization – particularly in the early days.  The reason is simple: all of the company resources are focused on the validation of the underlying business proposition (i.e., will someone pay for what we are making/providing?).  As a result, there is little attention being paid to the administration of the business or the development of corporate infrastructure (and by “corporate infrastructure,” I mean systems and processes to support operations).  And this is the way it should be.  As the old saying goes:  “Nothing happens until you sell something.”

Once the viability of the underlying business proposition has been established, the lack of infrastructure must to be addressed – out of necessity.  Sales inevitably lead to, among other things, contract administration, pipeline management, and the need to more accurately forecast future cash flows and capital needs. How a company builds the systems and processes to address these types of issues is very important.

Coming from a legal background, my natural tendency has always been to invest heavily in the back office side of a business.  The need to dot the I’s and cross the T’s probably stems from exposure to so many due diligence disasters.  But what I have learned over the years, is that there is a time and place for infrastructure.  Corporate infrastructure should follow the growth of the business (not vice versa), and a tension between a fast growing company and an infrastructure struggling to keep up, is often a healthy tension.

In my opinion, one of the important responsibilities of a CEO (and Board of Directors) is to manage this tension and strike the appropriate balance between growth and infrastructure.  As a company grows, it is essential that key systems and processes are in place.  For example, the management team must have access to the data necessary to manage the business.  It is also essential that the company’s systems are sufficient to handle the addition of new customers and insure that ramped up sales efforts are not counter-productive.  But there is a point where infrastructure investment becomes negative rent.  When do you add to your finance team?  When do you invest in a new CRM system?  What is the ROI on the automated invoicing system?

The bottom line is that growth on the top line is often the mother of invention.  Building systems in an effort to manage the most immediate and pressing needs inevitably leads to both forced prioritization and efficiency.  By contrast, attempting to predict the administrative needs of a high growth early stage business, and get out in front of them, often results in a waste of precious time and resources.

While corporate infrastructure is necessary to keep a company’s trains running on time, it is rarely a limiting constraint to its success.   When (and how much) a company invests in corporate infrastructure is an issue that must be constantly monitored and assessed.  It is a fine line to walk, and for many, the acceptance of a certain degree of chaos can be the biggest challenge to overcome.

Category: Board of Directors, Venture Capital

Comments

One Response to “Growing Smart (Part I)”

  1. physician assistant
    May 14th, 2010 @ 12:32 am

    What a great resource!

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