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Executives Tell Why Growing a Firm Can Be So Hard

What’s the most difficult part of managing growth of private companies? We asked some of the people running the area’s fastest growing private companies. Michael Crump President/CEO/Owner McBain Instruments Chatsworth (Developer of custom-designed optical systems including microscopes and digital imaging equipment for industrial and biomedical uses.) The hardest thing is to stay focused and not grow in too many directions at once. We’re in a lot of different markets, we’re in the industrial market; we’re in the life sciences market. It’s really easy to get going in different directions and that can really divide your resources and you can get spread too thin. When you’re in the middle of exciting growth, sometimes (the inclination) to keep growing in different directions is an easy mistake to make. Also, many times you have a lot of opportunities, and the next thing is deciding of those directions, which one is going to give you sustainable growth. We recently faced some choices of whether to grow our engineering division or go to a national distribution for a life science market. We decided on the former because it’s more in line with our skills and what we’ve been doing for a decade. You certainly want to use some intuition, but you try to have as much information as possible before making a decision. You look at your profit margins in the category and where you see the market trending. You want to use the strengths of the organization, and you want to choose directions that are sustainable. I try to choose directions that are more easily attainable. Carlos E. Garcia President Garcia Research Associates Inc. Burbank (Minority-owned market research firm specializing in the Hispanic community.) The obvious thing is the banking issue. We suddenly had these monstrous upticks in our payroll, and our lines of credit weren’t keeping up. We had to scramble and borrow money from our equity lines. Our cash flow went from ‘we’d figured it out’ to suddenly out of control. At the end of the year we took all our fancy numbers to the bank and they said we can’t do anything for you until we see your tax returns. Tax returns take three months, and it’s not like we were inventing anything. When they finally got around to saying we’ll consider looking at all of this, we had to put up our line of credit for review. Even with this line of credit, they’re looking for (personal) assets to cover their exposure. The two biggest banks turned me down because my assets are jointly held between myself and my partner, and because he’s a man we do not have the legal right to marry in the state of California. We have plenty of equity to cover the line we were drawing out, but because I do not have the legal right to marry in California, I was prevented from securing a line of credit. We applied to four banks. We got turned down by two Wells Fargo and Bank of America. US Bank and City National Bank accepted. Tama Taylor Holve, CTIE CEO Willett Travel Studio City (Independent travel agency) One of the most challenging things about growth is staying as grounded as you need to be when things are changing. When things are going extremely well there’s a tendency to become a little euphoric and not to keep the reins tight like you have to do when things are hard. If you have a lot of food on the table, the natural thing to do is feast. But I think it’s really important when things are really good to curb that celebration and realize business is cyclical and we need to store our nuts away for when things are not so wonderful. There were a few years when I couldn’t do enough for my employees, and I didn’t keep much for myself. What’s happened now is, especially since the industry was hard hit by Sept. 11 and the SARS virus, I had to reappraise giving things and (instead) do more of things like giving praise and security and attention rather than just throwing money at them. I still really believe in sharing financially, but just because you have one good year doesn’t mean you give it all away. Drew J. Kaplan CEO IS West Agoura Hills (Full service Internet provider) There isn’t just one thing that is hardest. Managing and growing the company’s infrastructure, the communication, the accountability, all that stuff gets very dicey as you get bigger, and it seems to change when you grow every few million dollars a year. In the case of IS West, as we’ve gotten bigger we identified that we needed to create some new positions, so we created a director of operations to oversee the customer support center and our provisioning department and day-to-day operations. We hired a director of sales and marketing where before we had a sales manager. We also identified we needed an account manager. We didn’t just want new customers. We wanted to grow our business with existing customers and make sure they were happy. The analysis isn’t formal. When you’re a small company, you look around and say, where is it broken and what do I need to do to fix it and you kick around a couple of things until you come up with the answer. And then you try it. You run into all these challenges when you add these bodies and positions. Unless you’re really good at putting these processes and procedures in place, you’re going to have a little bit of chaos until you figure it out.

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