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Planning Aids Growing Pains

Of all the case studies that Michael Kubin studied at the Harvard Business School one of the few that sticks in his mind is a company that failed. You wonder how something like that happens, asks Kubin, one of the principal partners at Ionic Media Group in Encino. While any business owner wants his venture to grow, there is such a thing as growing too fast. When that happens a whole other set of complications presents itself – capital not meeting expenses or staff not keeping up with the demand of the product offered or there aren’t enough employees to begin with. How best to handle unexpected explosive growth, Valley business people said, is to have a plan in place, to be ready some how and not just react to the situation at hand. “We are making sure that the systems we have in place are appropriate to the level of business we are in,” Kubin said. “A company that knows it’s going to grow can be prepared for any growth rate as long as they understand what to expect and how to respond to it,” added David Fournier, CEO of Loan Toolbox, a Westlake Village firm providing resources and services for loan officers. Having the right people in place from the executive suite down to sales and marketing and the distribution floor is important to handling growth. Capable managers who know how to hire people to meet the current needs and the needs the company will grow into is a plus, Fournier said. Ionic Media makes sure the sales and marketing staff is professional and knowledgeable about what they are doing and how to bring in the right clients. “It all has to work together and one area cannot get out whack with the other departments,” Kubin said. At ISWest in Agoura Hills, President Drew Kaplan put a team in place ahead of what he sees as a period of growth for the Internet service provider and server hosting company. Kaplan recently brought aboard a vice president of sales, a controller and a director of operations. When a company gets into a hiring frenzy to meet the increase in business just getting a warm body can sometimes trump the quality of a new hire. Publicly traded companies or those backed by large venture capital firms can use their capital inefficiently by grabbing at whoever is available. “The privately held companies don’t do that as much because they are restricted by their capital,” Kaplan said. Right experience In getting the right employees during a growth spurt they need to have the right experience to make decisions on their own. The three partners at Exaktime, the developer and manufacturer of a time keeping system for the construction trade, found themselves called upon to give the final say on everything from packing tape to the size of a graphic. Being mired in minutia kept the partners from focusing on creating new products, said CEO Tony Pappas. “We had to hire a lot of staff to be able to execute without asking for management input every step of the way,” Pappas said. Customer service is another area that suffers when a company grows too fast. Business experts all suggested that the right infrastructure be in place to make sure that products can make it out the door. If a customer places an order and it takes month to fulfill it that creates an angry customer and one not likely to return or make a recommendation to a business associate. “That irritates the consumer,” Kaplan said. Sherman Oaks entrepreneur Doug Pick prides himself on the communication both face to face and electronic he has with vendors supplying his earplug business and the retailers selling the product. Although just a one-man venture Pick’s DAP World landed on this year’s Inc. 5000 Fastest Growing Companies list with a 50 percent revenue growth between 2003 and 2006. Outsourcing all phases of production, packaging and production of the Skull Screws, Sleep Pretty in Pink and Hearos brand ear plugs drives the growth at DAP World. The outsourcing also allows Pick to have quick turnaround when an order comes in from major retailers like Wal-Mart, Walgreen’s, Rite-Aid, and Guitar Center. “Protecting our customers is our number one priority,” Pick said. No money Finally, a major pitfall companies growing too quickly face is running out of money. One sure way to make sure things go badly is to have the accounts receivable are out of whack, said Ionic Media’s Kubin. Baby and pet care products manufacturer Munchkin Inc. in North Hills turns down acquisition and licensing deals if they don’t fit in with the long-term goals of profitability, said President Margaret Hardin. While some companies adopt a policy of having the highest revenues, Munchkin adopted a model of generating cash flow and ensuring the bottom line grows faster than the top line. “We are in here for the long haul,” Hardin said. “If you have enough to invest for the next three years then you have enough for five years.” Considering Munchkin caters to two segments that people love to buy things for children and pets it’s not surprising the company has generated the revenues to land on the lists by the Business Journal and Inc. magazine for fast growing companies. New product development spurs the company’s growth; coming up with improvements to make a parent’s life easier. Launching the pet division Bamboo in 2004 made sense for Munchkin because market data showed that two-thirds of homes with a pet also had a child. “We felt we were reaching the same consumer and saw a major change in how people view their relationship with pets and treating them more like children,” Hardin said. “We think we understand that relationship.”

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