Fast growth startup issues transcription

By Fiona Boyd |

This is the transcript of the videopost Fast growth startup issues, featuring Phil Grant, Managing Partner at boutique accounting firm Nexia ASR talking to Fiona Boyd, co-author of Niche Content Millionaire about how startup businesses can hit potholes in the road, even if they’re doing well and achieving their goals, and then, what to do about the bumps.

Fiona: I’d like to welcome today Phil Grant, managing partner at boutique accounting firm Nexia ASR, and we’ll talk more about money matters and the entrepreneur. Good morning Phil.

Phil: Hi Fiona, how are you?

Fiona: I’m good, I’m good.

Phil: Excellent.

Fiona: Phil, today I’d like to look at what happens to an entrepreneurial company when it’s in a fast growth phase. I mean, everyone who does a start up, they write their business plan and they really hope that will happen, but usually that’s not the case. Though if it does happen it’s an exciting time, but there are some pitfalls also, aren’t there? Can you maybe sort of highlight…a company gets out of the blocks, it’s all working and it’s going really fast, what are some of the things that could be problems?

Phil: Look, I think the first thing that you’ve got to do in that space to avoid any problems is you’ve got to be dynamic, and so you’ve got to be able to change direction quickly. And I think hopefully a lot of start ups you don’t have a massive workforce, and so it’s typically the founder and maybe a few others, and it has to be a strong collaborative effort in understanding that you might have to change direction quickly. Having said that, planning’s critically important. I’m not talking about multi-page documents of business plans but really one-page plan approaches of knowing where you are now, where you want to be and then having clear strategies to get you to the next stage. And it may well be that if it’s really moving quickly you need to take stock on a regular basis and just reassess those plans.

It may sound a bit controlling to have to do that but I think you need to always know where you’re heading or else you can’t quite see what’s ahead of you. And you’ve got to be able to see, you’ve got to get visibility about what’s ahead of you so that you can then plan your next move. There’s always going to be things that come up that you don’t anticipate, that’s the beauty of it in many respects, but I think you need to have a clear plan. Having said that, you need good people around you to support you. Whether that’s internal or external advisors, you need to have good people around you who maybe have got some experience, who can help you anticipate what those roadblocks or issues are going to be so you can plan, so you can at least have a thought about what, well, what am I going to do if this happens, and what are the likely implications of these actions? So I think that’s really what you’ve got to do. Now, there’s no ironclad guarantee, there’s no doubt you’re going to get yourself into problems but with a start up business that’s all part of it. It’s I guess the risk and the reward scenario where there’s risks and part of those risks is the unknown. And hopefully the rewards are substantial as a result of taking those risks.

Fiona: Phil, I’ve certainly noticed that when we were in periods of fast growth with Arts Hub that, well, actually, we’re in a good position, we had surplus cash, but there’s always the temptation then to go and, you know, get a bit more diverse and use that cash in other ways. And the plan really is the discipline to stay on track and just keep making good money and look after your customers, and not going too far sideways. Would you say that’s a sort of a common pitfall, that many businesses could be tempted into?

Phil: I think it’s, the word that comes to mind is distracted, you get distracted or you lose interest and you think, oh well, I’ve done that, what’s next? And I think you’ve got to be confident that you’ve bedded down what you’ve got. But I think also you need to have an eye for what’s next, so the pipeline, what’s in the pipeline, and I think that’s where this planning is critically important, you need to say, OK, it’s good to have a pipeline, I think it’s critically important, that’s part of the visibility about the future. And a pipeline of ideas or innovation is, I think, critically important, but I think they need to be carefully managed so you don’t end up simply saying, oh, we can just do that and you ignore all the good work you’ve done, behind, in the past and suddenly you think, oh, jeez, I’ve got this idea up but the last one’s fallen over and so you’re always tripping yourself up. So there’s got to be discipline, to make sure that you stick to the plan, but have an eye for the future also, but you’ve just got to manage that. It may well be that you can see all these great ideas but you just don’t have the resources, which is typically the case, to actually go and do the next stage – the resources being people and money. And so, you know, you just have to be patient. And I’m sure that there are plenty of businesses out there which will counter that saying, ah well, we just run off and do it. That’s fine, and there’s going to be a certain success rate from that, but I guess what we’re trying to do is, we’re trying to design it so the success rate is higher. I think by having a well-planned process around it, I think that’s going to give you better success.

If youre startup is in fast growth, make sure your plan can cope with it!

If your startup is in fast growth, make sure your plan can cope with it!

Fiona: Phil, I used to work for a government agency in WA called the Small Business Development Corporation and we often had small businesses come in and ask for various types of advice. And commonly those that were in fast growth had a cash flow crunch. And there were many reasons but for many it had to do with servicing all the new clients they were able to get in cost more than the money coming in the door. The money coming in the door was delayed. What do you do if you’re actually growing well, the numbers look good, however the cash in the bank is going to hit negative?

Phil: Look, I think it comes back to planning. You need to be able to have that visibility and know that that’s the case…

Fiona: And then what do you do?

Phil: Well, you need to access the resources, and that’s the finance resource, to fund it. I mean, growth has to be funded…

Fiona: Is that bank finance? Equity finance?

Phil: Could be, could be…look, could be bank finance, and I’m sure all of us have done it, where you’ve hocked a house and hocked everything and you’ve got nothing left and so it may well be that you go to the bank and the bank might not lend you any more money and you go to the VC firms and they might say, oh look, you’re too early or too small or too much risk, so you can’t go there, it may well be that you go to the next door neighbor and say, I’ve got this great ideas and he banks you and you give away some of the farm in order to do that. I guess you’ve got to measure that, or it may be delaying the decision until you’ve built up your business, you’ve generated a bit more earnings, where you can actually afford to reinvest them in the business. Because ultimately, by taking that decision, you might end up hanging on to a greater piece of the pie. If you jump a bit earlier you’re giving away some of the pie. But on the other hand, if you wait a bit longer, you might lose the momentum and lose the opportunity, somebody might take the idea. So you’ve got to balance all those things up, and you’ve also got to understand, well where am I heading, what am I trying to head towards? But the critical part to this is being good at what you do and not neglecting what is your core business. And so, you’ve got to really examine whether, what you’re proposing, it might be great, but is it really about what you do? It might be a separate business idea completely, which needs completely fresh business plan and set of capital attached to it, you know?

Fiona: Fast growth doesn’t usually last for ever, so what are some of the things a business can do in that time to make sure it doesn’t suffer too much later down the track where, when the business returns to more normal and expected growth pattern?

Phil: Well I think it comes in, I’ll just keep on saying it, planning, because I just think that’s so important. It’s sort of understanding that businesses have peaks and troughs, you know, there are times when, you know, the resource that you needed to build a business, which is the investment, are heavy and the cash commitments are heavy but we actually end up with a position where we know that that will plateau and all of a sudden you start to get a return on that investment. And I think you’ve got to, you know, in your planning, be clear on what your acceptable timelines are, plus or minus, you know. And once you have that clarified, you need to sort of monitor that, but I think, you know, if we all had 20/20 vision of exactly what’s going to happen, well it’s going to cost me X million dollars to build this, I’ve got all the money set aside to fund it, I’m prepared to make that investment and at the end of that investment I know that I’m going to get a return of 25, 30, 40%, whatever the acceptable benchmark for you is as the founder. And when you get to that point, and when you start to deliver, and your business is restored to its strong cash flow because you’re no longer investing, that’s an acceptable return for you. So I think it’s about being realistic with your expectations. I think a lot of start up businesses don’t have that clear vision they just go about…

Fiona: Running running running!

Phil: Running about and not looking ahead. Which is what you’ve got to do, you’ve got to look ahead.

Fiona: Thanks for your time today.

Phil: Thanks Fiona.

Fiona: I’ve been speaking to Phil Grant who’s managing partner at Nexia ASR and we’ve been talking about money matters and the entrepreneur.

Photo: flickr net efekt

Phil Grant has been the long-time financial advisor to Fiona Boyd and David Eedle and they stand by his company’s motto, that they deliver ‘Value Beyond Numbers’. You can read more about how Phil’s advice has made all the difference to Fiona and David during the Arts Hub journey in their book, Niche Content Millionaire.

Niche Content Millionaire is a downloadable eBook that tells you the true story how we made millions from subscription content and membership websites.

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