The document discusses the challenges of rapid growth for small companies transitioning to medium size enterprises. It identifies tendencies like loyalty to comrades and task orientation that work for startups but hinder larger organizations. Specific challenges are listed in leadership/management, financial management, organizational structure, and product/service offering areas. The document then provides strategies and solutions to overcome each challenge, such as creating budgets and cash flow tracking to manage finances, assessing skills needed and hiring/training employees to manage people, and partnering for resource-intensive services to offer quality products.

1. Prepared by: Cameron Abram, John Henderson, Meghan Mathieson, Clarisse Ong, and May Zhang 1
What are the challenges to rapid growth?
With any challenge, we need to start by understanding the situation and the root causes of the
problem. Only then can we develop an effective action plan and execute it, iterating as
necessary, until the problem is solved.1
When a small company enters a phase of rapid growth, it is beginning the transition from a
start-up enterprise to a small to medium-size enterprise (SME). These two types of
businesses are fundamentally different, and the transformation is not easy. Start-ups are
essentially a person or group of people with an idea, searching for a successful business
model. A SME is a business executing a successful model.
Some of the challenges present when navigating this transition are tendencies that work at a
small scale but hinder larger organizations, such as:2
The above management tendencies can manifest in a number of different ways, affecting the
business’s financial management, organizational structure and resource management, and
quality of the product or service offering. These are further defined as follows:
Leadership / Management:
• Lacking strategic direction and advisors
• Lacking business or managerial skills
• Insufficient documentation for processes
• Overwhelmed by day-to-day problems and
stuck in crisis mode
Financial:
• Struggle to manage healthy cash flow levels
• Pricing structure not based on value of
product or service offering
• Difficulty creating a business case aligned to
strategy to obtain short-term financing
Organizational Structure / People:
• Informal organizational structure
• Insufficient number of employees with
required skills (technical and business)
• Insufficient employee training programs
• Underdeveloped support functions (IT, HR)
Product / Service Offering:
• Intensive R&D cycle
• No protection of intellectual property
• Insufficient redundancy in equipment /
technology (no maintenance program)
• Lack of consistent (loyal) customer base
1
Watanabe, K. (2009). Problem Solving 101. Penguin Group: New York. ISBN: 978-1-59184-242-2.
2
Hamm, J. (2002). Why Entrepreneurs Don’t Scale. Harvard Business Review. Reprint R0212J.
Loyalty to comrades
Task orientation
Single-mindedness
Working in isolation
Challenges to Rapid
Organizational Growth

2. Prepared by: Cameron Abram, John Henderson, Meghan Mathieson, Clarisse Ong, and May Zhang 2
How can the challenges to rapid growth be overcome?
To overcome these small-scale management tendencies and grow the company, the
founder/leader requires self-discipline and the ability to listen to and seek input from others to
shift his or her outlook and practices. Part of this process is clarifying goals (both personal and
professional), establishing a strategy, and executing that strategy, iterating as necessary to
achieve the desired outcome.
Ensuring long-term success for any business is difficult. Affirming that your company’s strategic
focus provides benefits that customers want and need is the first step in achieving long-term
success. Thoroughly understanding where your company best fits into the value chain and how
your business generates profit is the next step.
Strategies for successful growth include:3
Ways to address the previously mentioned challenges of financial management, people
management, and offering a quality product or service are discussed below:
Solution: Managing Cash Flow
Working capital (cash) is crucial for the success of any business, but especially small businesses
during periods of rapid growth. Cash is in tight supply (tied up in growing inventory and
accounts receivables) and banks are often unwilling to extend credit. If short-term liabilities, like
salaries and rent, are due sooner than payments are received for sales of products or services,
the business will fail without sufficient cash flow or access to credit.
How can small businesses manage cash flow? The necessary steps to evaluate the company’s
need for cash and then manage it are as follows:
1. Create an operating budget by evaluating expected income and expenses (based on sales
forecasts) to determine expected profit/loss.
2. Establish a month-by-month cash management system to track:
a. Starting cash (what is on hand at the beginning of the month);
b. Cash in (all cash received in a month such as sales, interest, payments received);
c. Cash out (all fixed and variable expenses such as rent, salaries, supplies);
d. Ending cash (= starting cash + cash in – cash out) that becomes the next starting cash.
3. Compare the change in cash over the month to the operating budget to identify trends
and possible causes for decreases or increases in operating cash.
3
McGrath, R.G. and MacMillan, I.C. (2005). MarketBusting Strategies for Exceptional Growth. Harvard
Business Review. Reprint R0503E.
Transforming the customer experience - what do they value?
Redefining your business’s profit drivers - how do you make money?
Anticipating and exploiting industry changes - what will happen next?
Creating a radically new offering - what needs can you meet?

3. Prepared by: Cameron Abram, John Henderson, Meghan Mathieson, Clarisse Ong, and May Zhang 3
4. Use the budget and cash flow tracking to anticipate the business’s cash flow needs and
determine how growth will impact the company’s finances.
5. Prepare contingency plans (savings, line of credit, short-term loan) by connecting with
potential lenders to address any cash shortages before they happen.
Solution: Managing People and the Organization
Shifting from an all-consuming focus on “the idea” to operating as an organization with
employees and structure is challenging. People are the heart of a business. A structure that
enables individuals to use their strengths in pursuit of the vision will increase efficiency and
morale. The leader/founder, guided by a well-defined strategy, needs to take a number of
steps to manage this transition:
1. Assess what roles and skills are needed to meet the demand for the product or service the
company is offering.
2. Determine the optimal mix of founders, employees, and partners to fill those roles and
provide those skills.
3. Prepare job descriptions and hire employees to support the most critical (and profit-
driving) areas of the business.
4. Develop a program and train new employees to ensure consistent standards and
understanding of the business strategy and tactics.
5. Prevent over-reliance on key personnel by cross-training roles where possible.
Solution: Partnering to Offer a Quality Product or Service
Hiring sufficient internal resources to provide a quality product or service may not be possible
with early-stage cash flows. Establishing partnerships with other companies to provide periodic
or resource-intensive services may be an effective way to manage growth and allow the
company to focus its limited resources on strengthening its core competencies and
competitive advantage.
1. Assess the steps in the company’s value chain.
2. Identify the profitability of each step and compare each to the resource investment
required to generate that profit based on the projected level of growth.
3. Identify external partners that may be better placed to execute a component of the
business that requires more resources than the company’s state of development can
provide.
4. Establish a mutually beneficial partnership to allow the company to avoid the aspects of
the value chain that require significant resource investment and would impact overall
profitability.
5. Focus on those aspects of the business that provide the company’s competitive advantage
and grow the business to a comfortable cash flow level that will allow additional resource
investment.