Tool Box
Issue No. 36 - August/September 2007
Judging how hard to pull the reins
by Rudy Pieck
The idea for the business has been proved, a few important customers have been signed up and the business is beginning to generate cash. But building the organisation is fraught with difficulty.
For a start there is an uncomfortable three-way struggle, with the imperatives of growth, cash generation and control pulling in different directions. A business that does not generate cash will not survive but sustained growth inevitably consumes cash – at a faster rate than most young businesses realise.
Similarly, there is tension between growth and control. To expand, a business needs creativity, flexibility and a calculated openness to risk. Too tight a hold on the reins will suffocate creativity, but with too light a hand, the horse will gallop into the sea.
Cash management in the young, growing business is about understanding the cash cycle: how long it takes you to convert cash tied up on the balance sheet in stock and debt into cash in the bank, and the extent to which the drain on cash increases as the order book grows and the business expands. With no accountant on the team yet, entrepreneurs running businesses in this stage need to be on top of those numbers themselves.
Control issues are usually brought to a head by attempts to expand the management team. Who to bring in – and to do what – are critical issues: where you put your key people will determine where the business goes.
Many businesses with an eye on the future try to recruit individuals with experience of business higher up the evolutionary scale. But life in a young business is different from that in a bigger company and fitting into the smaller business can be difficult for such recruits. It is common for the role to have been ‘oversold’ by an entrepreneur, keen to justify himself to himself, in front of a candidate trying too hard to seem enthusiastic.
And young businesses change so quickly that the business plans sold to a prospective membe...
