Prospective clients seem taken aback when I ask them for the reasoning behind their growth goals.
They are used to being asked about their goals and growth plans and have no problem sharing their established metrics for revenue or headcount expansion. What they do not expect, and rarely have an answer for, is someone following up with the question “why is that your goal?”
Perhaps the answer is obvious: businesses, especially when venture backed, must grow. The common wisdom that tends to follow from this is that more growth, and faster growth, is always better. I see this especially with the tech and healthcare clients I work with, where they adopt the mantra of ‘hypergrowth or bust’ without ever really examining whether that makes sense for them.
Reexamining things that seem obvious and questioning collectively agreed upon assumptions is a favorite activity of mine, so let’s explore together. The longer, shorter way will ultimately lead to the conclusion that, for many companies, an approach to growth that emphasizes stability over speed may better align with their goals. Feel free to take the shorter, longer way and jump to the practical takeaways and tips for achieving stable growth here.
Growth is a choice
Let’s take for granted that a successful company remaining in business is a good thing – its clients need the goods or services it provides and the people who work there depend on it for their livelihood. Once a company grows to a state where it can provide sufficient value to its clients and employees, why then grow beyond the requisite amount to maintain this state?
Most living things grow significantly earlier in life until they reach a certain size, at which point they shift into a maintenance mode. After a period of growth and expansion, maybe to organically fund or to pay back loans from the acquisition of key hires, equipment, technology, or space, business could do the same. Once they reach a certain state of maturity, why should it be necessary that a business continually expand its client base and revenue, quarter over quarter, year over year?
An argument could be made that businesses need to constantly evolve to stay relevant in the market. The amount of growth required for that, however, could theoretically be accounted for in a maintenance model: you could just allocate a certain portion of company profits to fund innovation or learning and development. Even if the amount of money required for R&D is massive, nothing about the necessity of some growth dictates that a business must hit ever-increasing ambitious growth targets.
If growth beyond a certain point or beyond what’s required to maintain an equilibrium isn’t necessary, then the decision to keep growing is more of an active and intentional choice than we typically think. What, then, might be the reasons or motivations for making the choice to grow a business?
Motivations to grow a business
Some reasons for business growth are selfless and noble, others are more self-serving and profit motivated. Both are totally reasonable; I just find it useful to clearly understand the specific motivations of my clients for their growth when working to formulate strategies to drive that growth.
In my work, the major force driving most companies’ growth goals (particularly the timing of those goals) is venture capital. We’ll unpack this one in the next section in more detail. Other than that, when I challenge prospective clients to dig deeper, here are a few motivators for growth that I hear most frequently:
Growth to do good
Thankfully, there are a lot of growing companies with missions to address some of humanity’s greatest challenges. Startups focused on building a cleaner and greener world operate with a sense of urgency to tackle tough problems – their motivation to grow is grounded in an authentic desire to become profitable to continue doing good in the world.
Growth to solve a problem
Growth for our people
Growth for profits
Growth to mitigate future risk
Blitzscaling and hypergrowth may not align with your growth goals
Usually, with the companies I work with in the Bay Area especially, the audacious timelines attached to growth goals are coming from pressure from venture investors.
Venture capitalists' investment strategy is a function of the inherently risky nature of venture investing. They make bets on many companies with the expectation that most will fail. Their goal is usually to have at least one wildly successful “unicorn” in their portfolio, procuring a 100-1000x return on their investment that offsets all the other losses. VCs therefore encourage, and in some cases leverage their board seat power to push, companies to take massive risks and to grow as much as possible as quickly as possible so that they might be that one unicorn.
I am not at all discounting the huge responsibility that companies, and their founders, take on when they raise venture capital. At the time of raising that money, a startup should be fully on-board with the idea of growing and scaling to take the market by storm. In some rare cases, there may be a somewhat direct path towards that outcome. In most instances, the trip is far more turbulent.
When venture backed companies are faced with unanticipated challenges or changes in market conditions, the question becomes: how much risk should be taken to commit to the originally intended path? When seas get stormy, is the job of the founder as captain of the ship to hold the course and risk it all or to seek safe harbor? Is it the CEO’s role to move forward with potentially existential risks because of previously agreed to timelines, or to be a steward of the company and its employees (who are also shareholders) for the long haul?
Let’s look at an example.
Consider a mission driven company with potentially game-changing climate tech that raised $5M at a $50M valuation.
Once they raised the money, they quickly expanded their team to scale their offering, burning cash at a high rate to fuel rapid growth. After eighteen months, they made a lot of progress and built some pipeline, but they have yet to fully find product <> market <> sales fit. Even if they make significant cuts to their budget, they will still run out of money before they can fully hit their stride.
The conventional wisdom, usually coming from the VCs, is to raise more money, buy more time, and take a shot at making it big time. What if, however, the company were to get an acquisition offer from a major player in their space at a $75M valuation?
On the one hand, the brand and resources of the larger company could likely scale and distribute the climate-saving technology more quickly and efficiently. At that valuation, the employee’s stock options would all be worth something, and the founders would likely be wealthy enough to devote themselves fully to furthering their mission. While this path would align with the company’s stated goal of growing to better the world (they spent a year and a half working to build the company to this critical inflection point), for VCs this usually isn’t enough growth.
Maybe the founding team agrees that the best way to achieve their goals is to go for broke, put all their chips on the table, and raise more money to keep going towards an IPO exit. That’s totally fine if it is what they want to do. When I’m talking to a founder, I just encourage them to communicate their growth goals and motivations behind those goals (whatever they may be), and to evaluate how aligned their strategy is with those goals.
How prioritizing stable growth may better align with your own goals
While all business decisions carry some risk, VCs tend to be looking to bet everything on a one-in-a-million chance while a founder’s motivations may better align with an approach that prioritizes stable growth.
When formulating growth plans, a commitment to stability requires evaluating underlying assumptions driving a forecast. This means asking questions like, “what if this bull market doesn’t continue?” A stable growth strategy would make more conservative projection estimates, choosing to take the risk of leaving some upside on the table over the risk of overhiring. If a founder says that one of their motivations for growth is providing their employees with opportunity and a great work environment, it would seem to be especially important to avoid a potential layoff scenario, even if it means growing more slowly.
It is critical to emphasize that stable growth does not necessarily mean slow growth, it just means prioritizing stability over speed. If you are overwhelmed with demand that you have reasons to believe will be sustained, then you may very well want to quickly hire and build teams to service that demand. A focus on stable growth means that you don’t settle for hiring employees that might not be a good fit for your team just to fill seats by an arbitrary deadline.
Even if a founder and their team are primarily motivated by profit, a more stable approach to growth in many cases presents the best odds of making their stock worth something. Building an increasingly valuable business over time and keeping a war chest to ride out tough times or to deal with unforeseen challenges keeps you in the game longer. Plan A might still be to IPO at a multi-billion dollar valuation, but not taking huge risks allows you to keep your options open to a Plan B or C where you end up cashing out much wealthier than you started (but perhaps without a yacht).
How to manage potentially competing or conflicting priorities with venture investors
For a founder, their business is their baby. They conceive of a life-changing idea, take on great personal risk and sacrifice to incubate and bring it into the world, and then continue to devote a huge amount of energy and resources to growing, nurturing, and protecting it.
Contrast this human parent and child analogy with the perspective of a venture investor, which is more like an alligator. Alligators typically lay 30-40 eggs at a time, where only a few will make it to maturity after facing the gauntlet of risks ranging from early mortality to predators to cannibalism. The mother alligator doesn’t get too attached to any particular baby, because the odds are good that at least a few will make it to adulthood.
To be clear: most venture investors I know are wonderful people who form deep connections with the founders that they work with and become emotionally invested in the companies they fund. Still, it is the nature of their business that their success is the success of their overall fund, not of any particular startup. I’m not trying to portray VCs as cold-blooded reptiles (that just happens to be a good counterexample in nature to the baby analogy), but to contrast the interests and motivations of a founder with their investors.
I also want to clearly re-emphasize what I said previously about the weight of the obligations that founders have to their investors when they take their money. At that point, everyone should be aligned that the ideal situation is one in which the company continues hockey stick growth, up and to the right, and everyone is successful in achieving their monetary and non-monetary goals. Given that most company’s actual growth paths will not look like this, and that founders and investors have different metrics of success, the challenge is what to do when the situation changes.
Ideally, the founder is able to work together with their investors and their board of directors to align on a growth strategy in light of evolving circumstances. Quarterly board meetings can be used as opportunities to discuss priorities, compare and contrast different scenarios, and to work together to find the best path forward.
Most investors, as smart and reasonable people, will respond to sober analysis and compelling arguments for a more stable approach. If they do think that a founding team is being too risk-averse, engaging them in this dialogue creates a forum for constructive discussion and debate. This approach of transparent communication will, in most cases, lead to better outcomes than the typical approach I see of founders scrambling to put the best face on their lackluster metrics or bending over backwards to tell investors what they think they want to hear.
Worse comes to worse, if attempts to engage the board with rational arguments fail, there is a reason that board seats are a valuable asset as part of fundraising negotiations. If the co-founders still have the majority of the votes (as they often do with the early-stage companies I work with), it may be in the best interest of their company and its people to use this power to seek a more stable growth plan.
Formulating a stable growth strategy
If you’ve read any of my other writing, you’ll know that I don’t advocate for one size fits all approaches. There is no master ten-step plan to achieve stable growth. It depends on you, your business, and your unique circumstances. Additionally, I wouldn’t advocate jumping to the conclusion to prioritize stable growth before going through the exercise of listing out your motivations for growth and examining how well your current strategy aligns with them.
That being said, here are a few general categories and specific examples of where there are opportunities to prioritize stable growth.
Goal Setting:
Set realistically ambitious goals by evaluating resource requirements, counter-metrics, competing priorities, and the risks of burning out your team.
Choose revenue targets based on bottom-up projections using data relevant to your product, market, and team’s past performance. If you don’t know, be conservative while you learn and discover product <> market <> sales fit and learn what works.
Ensure you have the bandwidth to deliver on your sales targets if you meet them, or lower the targets. Your ideal client would probably rather wait to start with you than rush into work with an overburdened team that is unable to give them the optimal experience.
Hiring:
Invest early in a people operations generalist and have that person facilitate processes for continuous candidate networking and passive recruiting.
Be careful to hire the right level people at the right time for your business and stage, and know how and when to effectively outsource or delegate different types of tasks to contractors.
Prioritize a candidate’s fit with your team as much as past performance or the promise of future achievement; a high-achieving person that others don’t like may drive short-term growth at the expense of degrading culture and morale.
Finance and Fundraising:
Know your numbers and consistently track KPIs to stay ahead of major threats like an eroding margin or increasing customer acquisition cost.
Price your offering for what it’s worth from the beginning; discounting to scale and other growth-hacking mentalities are inherently unsustainable. (Offering discounts for marketing or publicity rights or for beta-testing a new program can make sense in some cases.)
Raise money when you have it and are considering funding certain expansion opportunities, not when you will go under if you don’t get it right away. Sell investors on the chance to invest in concrete growth plans, knowing that if they don’t, you can delay or defer and still be fine.
Leadership:
Transparently and consistently communicate the motivations behind growth plans.
Motivate employees to achieve growth by aligning those motivations with incentives. An openly profit-driven company would ideally have a bonus structure tied to those profits, while an employee growth focused company would invest in a robust learning and development curriculum and consistently promote from within the company.
Keep a pulse on how growth is impacting your team and invest in coaching, support, training and team-bonding activities early and often.
The Tiferet Approach
The Tiferet approach is to seek out a bigger-picture narrative or understanding that brings unity through contextualization. For founders, this often means deep introspection to discover and articulate their true motivations. That’s not easy, and it may require an uncomfortable amount of vulnerability.
Once you do have clarity on what your goals are, you can weave those goals into a strategy that then encompasses all the different aspects of running and growing an early-stage company. The key is to be vigilant about returning to this strategy as an overarching guiding perspective that can inform decisions across an organization.
In this way, you’ll ensure that you are staying true to yourself, taking calculated risks to grow your company, your way.