Over the past few years I’ve had the opportunity as CEO to experience times of slow growth when we were on the brink of insolvency to periods of high growth where the demand is far greater than the capacity of the workforce. Both are equally as challenging. Here are some characteristics of high growth companies as well as some strategies for managing through the change.
Characteristics and Challenges of High Growth Companies
- Short term focus versus long term focus – stuck in day to day
- Substantial increase in volume of work, increased problems and frustration
- Employees with inadequate skills and business with inadequate systems
- Internal turmoil – new employees, decision making changes, turnover
- Talent management – employees aren’t growing or maturing at same rate as company
- Recruitment – trouble hiring employees who are action oriented and comfortable with change
- Development of employees –not providing appropriate time for career development and goals
- Decreased morale and satisfaction with manager and position – employees feeling stretched
Strategies for Managing High Growth
- Vision and values need to be reinforced by management team
- “How can we do this better” as a response to “I have too much work”
- Communication has to be clear and frequent – what, why and how
- Actively managing versus passively managing
- Handle employee concerns or complaints serious – as if they were customer complaints
- Carving out time to focus on long term
- Improving and simplifying systems – both process and technology
- HR to play larger role in employee-manager relationship management
FCP was established in 1986, by Harry and Kathy Bauer, as a brick and mortar store, in Groton, CT. They set out and served the local European and Asian Import auto parts market for years, making first-rate customer relationships and service, blended with top tier quality products, a priority from day one.
In 2001 their son Nick, noticing customers were venturing online for purchases, began selling the stores inventory on Ebay. This was followed shortly after with a new website.
I joined Nick, in 2002.
Together, with only two computers, five employees, a small 2,000 square foot office, and a tractor trailer filled with inventory, we grew the business to $8 Million in annual sales by 2007. We did this by keeping with the same priorities that the original brick and mortar store had, focusing on customer service, relationships with our community, and only the finest products at the most affordable prices.
In 2008, we moved the business to a 20,000 square foot warehouse and 6,000 square foot office in Old Saybrook, CT. At the same time, we introduced an order and warehouse management system to the business that allowed us to automate and streamline all of the basic eCommerce functions. This included a point of sale for the call center, automated inventory sourcing for purchasing functions, picking and shipping for the warehouse, inventory management for supply chain and fulfillment improvements, as well as a basic CRM (customer relationship management) functionality. We expanded the business to 33 employees and grew it to nearly $15 Million in annual sales by the end of 2013. All of this was done through re-investments of profits and a small credit facility.
At the time we were headquartered in an old-outdated-manufacturing plant, and it was during this period of growth and expansion, it became apparent that we were quickly outgrowing our current facility. The town was a tough fit for where we were headed. It was not conducive for a strong talent pool and the design and infrastructure of the warehouses and offices were not adequate to support growth. When this was realized, we began looking for our new eCommerce distribution center.
Space & Building Requirements
We then consulted with UPS supply chain solutions in order to help develop an Inventory Square Footage Growth Model based on current and future warehouse operations and growth projections. During this process, UPS conducted interviews with key FCP personnel and analyzed three years of sales and SKU data. By examining SKU and order characteristics, such as order size, lines per order, weight and cubic space per order and SKU, they were helpful in estimating the square footage needed. This was based on our existing racking dimensions and future growth projections. They also proposed new warehouse layouts that included optimized pick locations and cube optimization in our new distribution center.
UPS also assisted in developing a warehouse requirements and document that included specific building requirements, such as the interior layout, plumbing, HVAC, fire protection, general lighting, warehouse floor layouts, vehicle dock doors, general yard, interior, and structural frame of our new distribution center.
We also hired CTRR, a real estate advisory firm that provides strategic transaction and advisory services to better reduce risk and cost, while increasing value in commercial real estate commitments. These recommendations were based on our warehouse requirements document, produced by UPS Supply Chain Solutions.
CTRR was able to provide site selection and inspection services – financial terms, occupancy costs, geographic parameters, security needs, site infrastructure, accessibility – as well as, test-fits, preparation of offers, negotiation of business and operational terms, financial analysis of term sheets, and negotiation of the final term sheet.
When all was said and done, we settled on Milford CT. It was an excellent location within two hours from both New York City and Boston. This prime location also has quick and easy access to I-95 and the Merritt Parkway and opened us up to a larger talent pool with it’s close proximity to New York City.
Office Design & Furniture
Our overall floor plan layout was designed by RTSPC Pinnacle, an architectural design firm that specializes in commercial space build outs.
They refined the original office area layout by addressing potential conﬂicts within our existing building elements, provided room conﬁguration plans that accommodate desired furniture and furnishings, as well as furniture plans for the ofﬁces, open areas, and meeting and pantry spaces. They also provided power, voice, and data receptacle locations in a plan to correspond with the room configurations.
RTSPC consulted on the interior design palette for our ﬂoor, wall, ceiling, and lighting ﬁnishes. They recommended speciﬁcations for ofﬁce furniture and furnishings, including private ofﬁces, open area work stations, meeting and pantry furniture, and window ﬁlm (glass meeting rooms) versus window blinds. By surveying and evaluating our existing furniture and furnishings for potential relocation, they were able to find cost effective ways for us to reuse instead of throw away. They were also able to provide recommendations on custom designed items, including custom millwork and personal furniture speciﬁcations, that differed from job function, level of seniority, and personal preferences. – View FCP’s Final Design Control Document
We went with RTSPC’s recommendation for furniture, which included Allsteel’s Benching Solutions, to better help inspire creativity and collaboration within teams and promote the feeling of community. For seating, we chose the SitOnIt Sona Chair; an elegant-slim-profiled chair, that is ergonomically friendly. For our guest chairs, we chose SitOnIt’s Focus Side Chair and in the conference room sits Compel’s Mojo chair.
Echoes and reverberation were a big problem in the call center at our old facility, so we designed the new facility with noise reduction in mind. Fabricmate’s Sound Dampening Acoustical Baffles were brought in to absorb the reflected sound in our new call center. The baffles were suspended from the overhead structure of the call center by cables. They have already proven to provide fantastic sound absorption, even when all of our representatives are on the phone simultaneously.
Allsteel’s Benching Solution complimented the acoustic baffles with sound dampening dividers. This stopped at head height when sitting down to make sure that the room still felt open and collaborative, while providing just the right amount of privacy. – View FCP’s Final Furniture Design Control Document
RTSPC Pinnacle took FCP’s company culture, brand, values, and cultural bottlenecks into consideration throughout the entire design process. This ensured that the final product was aesthetically pleasing while complimenting the brand, as well as functionally designed to cure cultural bottlenecks throughout the organization. Our furniture was provided by The Atlantic Group.
Warehouse Design & SKU Optimization
We went with W&H Systems, a material handling system and warehouse consulting firm, based out of New Jersey, to assist in the layout and design of our new distribution center layout. This was to maximize efficiency and space and avoid any unnecessary re-work in the future. They performed on-site observations, interviews, and time study data gathering, to assess the current flow of material, equipment, space utilization, and processes.
The areas of observation included, receiving of materials, put away, replenishment, pick (freight and small package), pack, ship (freight and small package), and returns. While working with W&H Systems, we developed a layout that improved the receiving and put-away process, optimized the “Just in Time” operation that accelerates our orders, and inventoried the existing racks and shelves, in our Old Saybrook facility for re-purpose.
Best practices were also discussed in depth, specifically relating to inventory management, equipment, space utilization, and processes (receiving, put away, replenishment, pick, pack, ship, and returns). Highly visible magnetic signs lined the aisles for easy designation of picking zones as well as a “responsive” magnetic labeling system that allows to expand and contract the amount of locations on any particular shelf to maximize cube optimization. All of this resulted in a layout that was optimized for space. It produced significant labor savings, from the transport of inventory to the order picking to shipping.
FCP’s growth has mirrored my own growth and the growth of the employees that proudly call our new facility their home. The employees here continue to educate one another, refine our model, and build great, innovative things. Just in the first two months after our move FCP has already implemented an Online Pickup Center and built an automotive DIY video studio.
This facility is not the pinnacle for us, it is our foundation for scalability and growth. A long time ago we decided that to build an iconic brand and enduring business, significant investments needed to be made into the company, culture, and customers. It’s not the easiest way, but it’s the right way.
The path to success for building an online business isn’t about growth – it’s about your ability to scale. While the two terms are often mistakenly interchanged, there’s a huge difference between growth and scalability. Scalability is key to growth and profitability, but growth is not key to scalability and profitability.
When you are “growing” a business, you are adding expenses at the same rate you’re adding revenue. Growing for the sake of growing can be really bad and growing bigger is not always better; it can destroy value by exceeding the capacity of your workforce and operations, it can put a stress on your service levels and financial controls, add more complexity and bureaucracy to your organization, and it can accelerate your business into a different competitive space where it will compete against more efficient competition with bigger balance sheets. Growth stresses people, processes and controls and fundamentally changes the dynamics and culture of the business if it’s not managed appropriately.
Scalability on the other hand, is when you are adding revenue at a faster rate than you are adding resources. By definition, “scalability” is the ability of a system, network, or process to handle a growing amount of work in a capable manner or its ability to be enlarged to accommodate that growth. In layman’s terms, highly scalable companies demonstrate the ability increase capacity without a huge increase in overhead and have minimal impediments to growth. When you’ve developed a business that can add revenue without having to add resources, infrastructure, or expenses to support that growth – you’ve unlocked the key to profitability and sustainable online business.
So, what are the keys to scaling an online business? High customer lifetime value and loyalty, low acquisition costs, and high operational efficiency.
Customer lifetime value
Customer lifetime value is a predictor of profitability of during the relationship with a customer. Improving your customer lifetime value improves your profitability and return on marketing investment. In other words, you can afford to spend more on marketing since there is a high likelihood those customers come back repeatedly, covering your acquisition costs. Improving customer lifetime value is often done through loyalty programs and customer service initiatives.
Low Customer Acquisition Costs
Customer acquisition costs are the costs of a business to acquire a new customer that includes marketing expenses, discounts, or incentives. When you develop and innovate your marketing strategies to improve your customer acquisition while reducing the costs to acquire those customers, you have built a scalable acquisition model. Business models fail when comes when the cost to acquire customers exceeds the lifetime value, or the ability to monetize those customers over their average lifespan.
High Operational Efficiency
Improving operational efficiency hash a positive impact on company culture, improves profitability, provides you a more stable cash flow, and allows you to exponentially increase revenue while incrementally adding resources. Process improvements, business process outsourcing, and increased training and development of employees are just a few of the many strategies used to improve operational efficiency.
While both scalable and non-scalable businesses can be successful and grow — only scalable businesses can achieve sustained periods of strong profitability and high-growth characteristics that are attractive to investors and strategic buyers.
Someone recently asked me “Are you scared your going to make a bad decision and the company will suffer?”
Of course I’m scared. I make bad decisions all the time but when it’s time to make a big decision I almost always get it right.
Here’s the trick – an incredibly important concept discussed by Jim Collins in his book Great by Choice : Bullets Before Cannonballs – first “firing bullets” to gain empirical validation before making a big bet (firing a cannonball).
We shoot lots of bullets before we launch cannonballs. You can consider these “bullets” as low-cost, low risk tests or experiments. Your missed shots are quick and have minimal impact on the company. When bullets hit the mark your load your cannonballs and unleash everything you’ve got. Successful companies find ways to test the waters before investing large resources into a project or making a critical business decision.
This diagnostic chart by PricewaterhouseCoopers is a fantastic tool that helps identify your company’s stage of growth as well as the management concerns within those stages. It’s something I have referenced back to throughout the years and gives valuable insight into what you may face at the next stage of your business. Planning is one of the most important parts of running a business, and when you know what to expect you’ll dramatically boosts the odds of your success.
We’ve been online since 2001 with annual revenues of $15 million and 34 employees. Our business currently has the characteristics of survival, growth, and expansion with the majority falling in in the growth stage. I give copies of this diagnostic chart to members of my management team and we compare our assessments. It not only gives my team a road map of things to expect as the business matures but also promotes a healthy dialogue between the group.
Here’s a link to the chart: PWC Diagnostic Chart
Mastering the art of getting shit done takes discipline and lots of planning. As the CEO of a $15 million online business I often get asked how I allocate my time during the working day. Well, here it is:
Employee development – 50%
This is the most critical part of my job and the one that I allocate the most time resources toward. Investing in employee training and development strategies is critical for the success of any business. It’s the only way to create sustainable and managed growth. As an entrepreneur who’s bootstrapped a business from $0 to $15 Million, there was a time that I did it all; janitor, shipping clerk, customer service, order entry, human resources, purchasing, accounting. It’s debilitating and exhausting, and will only lead to burn out. As a leader, you’ve got to leverage yourself through employees.
Tactical – 20%
This is the day to day, answering emails, talking with employees, putting out fires. Emails usually take up a majority of this time and I try to limit the email to less than 10% but after all, email ” is a game of tetris. ”
Process Improvement – 10%
I focus on two things here: How can I simplify the process and how can I make the process run better? Typically I will either work directly in the process or scan through email correspondence in my teams email queues or Gmail groups (we have email groups for sales, product team, customer service, products, purchasing, warehouse, and technical support.) I’ll find the bottlenecks and discuss with the department leads how we can simplify and improve.
Thinking & Strategy – 10%
This is my quiet time which is usually on my commute home. I reflect on the day and assess my performance; did I make improvements to the organization? Did I stay focused on what I set out to do in the morning? Did I get caught up in day to day (tactical) issues that prevented me from allocating my time appropriate? What do I want to accomplish tomorrow?
This time also includes working directly with my leadership team in achieving organizational alignment. It usually consists of a 2 hour offsite each week.
Professional Development 10%
This includes listening to podcasts and audiobooks, or reading articles and blogs. My commute to work is 45 minutes so it’s perfect amount of time to get into a chapter of an audio book or two 20 minute podcasts.
How do you spend your time at work?
“People before profits”
If you want to build a company of substantial value you need to always put “people before profits.” Culture is ultimately what differentiates successful businesses from failures, and you can only build a strong culture by putting your employees first.
In extreme circumstances when the welfare of the company is at jeopardy you make personal sacrifices before you cut into the muscle or bone of your organization. Don’t be a fool when you your company get’s into a jam by slashing payroll or your marketing spend. Ultimately the leadership is responsible for the direction of the company and any trouble it may get itself into, and this is where the sacrifices need to be made. Defer salary or guaranteed payments and put them on the balance sheet, or reevaluate the executive comp structure.
When all of the employees and bills are paid, and long term investments are made, the very little that’s left over goes to the owners. Often that’s nothing. It’s a small return for a large risk but that’s the chance you take and sacrifices you make, but things of substantial value rarely involve little risk.