What are the challenges unique to high-growth, entrepreneur-led businesses?
All businesses encounter challenges. No matter whether you are a start-up, or a titan in your industry, running a business is never smooth sailing all the time.
However, ‘high-growth’ businesses typically face a number of rarefied issues as a result of expanding at speed, a shift in the market, ground-breaking new product or successfully realising a business growth plan.
How do you classify a business as ‘high-growth’?
While definitions vary, a company is commonly classified as high-growth if it comprises 10 or more employees and has experienced an increase in staff or turnover, by an average of more than 20% per annum across three consecutive years.
Our team have a track record of working with a large number of dynamic entrepreneurs and top tier high-growth businesses. Sometimes the route to investment or sale begins many months, or even years, in advance of a transaction. That’s why part of our remit is to support entrepreneurs to identify and navigate challenges, helping them make intelligent decisions as they prime their business for an eventual transaction.
From this position, we have been able to gain real insights into the challenges faced by high-growth businesses. These include:
- Recruitment/talent acquisition
High-growth companies rapidly increase both their turnover and their team as they scale, however, many struggle to recruit the right people at the right time.
With companies using a range of tools and remedies in the battle to secure the best talent, high-growth companies seeking specialists to help them accommodate increased demand, meet ambitious performance targets or steward transformative initiatives, may be challenged to recruit the talent required.
- Management incentivisation
To retain talent at senior management level and stave off employee poaching, more and more companies are choosing to start incentivisation schemes.
By operating these, such as an Enterprise Management Incentives (EMI) scheme, it’s possible to reward and retain key people within the business, through equity participation.
While these schemes are commonly used by high-growth companies to attract and engage the best talent so they can scale up effectively, financial constraints may be a barrier for businesses. This is particularly when they are funnelling large amounts of capital into growth initiatives. Further barriers include a lack of clarity, as to how to design and implement an effective bonus or incentivisation scheme fairly and consistently.
- Scaling your sales team
Many entrepreneurs, aim to grow their business organically by moving into new markets and reaching new customers. However, if the sales team is unequal to the task, the business may end up struggling to keep up with rising demand. Under these circumstances, it’s necessary to scale the business’ sales team as quickly as possible.
From establishing a straightforward and repeatable sales process, to developing the technological proposition needed to support new staff, to acquiring the physical premises to accommodate them, the route to growing an effective sales team is one with more than a hurdle or two to overcome.
- System inefficiencies
Your business is riding high and orders are flying in. While this is great news, a marked increase in customers, staff and production levels may reveal hidden operational inefficiencies. These could eventually have negative repercussions, affecting levels of customer service and performance.
While no entrepreneur has a crystal ball, it’s important to look ahead to potential roadblocks to expanding your business. Setting realistic business goals and revisiting your growth plans regularly – as well as keeping a close eye on cash flow – can help you to scale up at the right pace, navigating the challenges successfully.
- Customer concentration
The spread of revenue across your client base matters. When a significant proportion of your business’s overall turnover is attributed to a single customer, or a small cluster, you may have a customer concentration issue.
High client concentration is one form of business risk, which could impact your business’s ability to attract investors or acquire debt financing.
At Clearwater Growth, we don’t just understand the distinct challenges faced by high-growth businesses, we also possess a nuanced understanding of the opportunities available to them.
Sam Miller, Partner at Clearwater Growth
Acquiring growth capital
Scaling up a business can be expensive, which is why companies usually choose one of three options to solve their cashflow conundrum. Either taking on debt, delaying other strands of their growth plans or seeking equity financing. Each solution carries its own host of advantages and disadvantages…
For example, debt financing may be more affordable for smaller businesses, as interest rates are still lower than other forms of financing (despite the recent hikes) and these costs are tax-deductible. However, too much debt and aggressive repayment terms could affect cashflow, posing a risk to the business’s financial solvency in the longer term.
If you’re opting to delay growth plans, you’re not alone. However, for many entrepreneurs, putting a pin in their ambitious growth initiatives is not an attractive option. If this is the case, you may wish to consider raising capital through investment or selling part of your business.
Private equity investment has a number of benefits, including the involvement of experienced investors with authentic interest in the success of your business. However, this may be tempered by restrictions on key decisions, with many entrepreneurs finding that amid the excitement of scaling their business, they have to accept some loss of control over the direction it takes.
At Clearwater Growth, we don’t just understand the distinct challenges faced by high-growth businesses, we also possess a nuanced understanding of the opportunities available to them. We advise entrepreneurs on how to prepare their companies for investment, help determine the ideal solution, then support them in achieving the best deal possible in line with future trajectory and growth objectives.