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Managing through rapid growth takes smart, deliberate finance moves

If the startup stage is all about surviving, the next phase of a company’s lifecycle, when it is time to really grow, is all about scaling. Once you’ve made it past the viability test, you’re riding the momentum of rapid growth. The company has come out of the gate firing on all cylinders, putting the entrepreneur’s brilliant idea into action and trying to scale as it continues to raise funds, connect with customers, hire talented people and establish its worth in the marketplace. There’s pressure to move quickly, to get noticed and fend off any competition, but there’s also risk in this pressing need for speed.

A major part of maturing and progressing smartly out of the start stage is managing resources to support the growth. Building an infrastructure for growth that doesn’t materialize can spell disaster. A young company with all the potential in the world can skid off the rails if they’re letting loose with spending. Overly confident that sales will come in—some day, any day now—the company could end up with bloated inventories, mismanaged resources and employees with nothing to do.

On the flip side, underestimating growth can be equally calamitous. Not having enough inventory on hand will send customers running to the open arms of the competition. And not having the people needed to properly process orders, support much-needed upgrades and meet customer demands will require an extremely difficult recovery to your good name. By applying the right set of finance smarts and business acumen to manage and predict growth with intention, the company can minimize the risks of burning out employees, setting up unrealistic expectations with lenders and investors, and losing sight of their cash flow amid conflicting revenue and spending goals.

Senior-level financial leadership can bring some much-needed order to the company so that it can progress at the right growth trajectory to match the strategy and end game. They can also direct focus onto the future, laying the groundwork for whatever is in store for the company. It is usually at this strong growth stage when a company brings in more reinforcements to supplement the finance team and hires its first full-time CFO. A seasoned finance pro can help steady the ship, to keep the company moving at high velocity but with a plan in place that is thoughtful and deliberate.

NatureBox, the Silicon Valley company that delivers smart, delicious snack packages, was moving at lightning speed when we sent in an interim CFO and an accountant to shore up ranks. At the time, its fledgling finance team was understandably struggling to keep pace with the explosive growth underway. And demand for NatureBox’s products was fierce. We helped out with extra hands to keep up with day-to-day accounting and also got them ready for the future, putting practical processes into place, prepping them for their first audit and providing strategic insights into key areas of the business.

Once set up properly, the finance team at a fast-growing company is poised to provide the full perspective that’s needed to successfully advance. Until then, the decision-makers may have had disparate vantage points, focusing only on their piece of the puzzle. The well-led finance team can put it all together and dig into the meaning of all the numbers and how they are connected. With a cohesive view, the direction of the company can become clearer and the company can prepare for what’s next, whether that next move is an IPO, an acquisition or whatever is behind door #3.

Avoid erratic moves that force the company into the slow lane. Bring some order to the chaos. Be realistic about the growth rate of your company and make solid plans to support it.

RoseRyan helps companies across the lifecycle, from when they are starting out, growing like gangbusters, expanding through M&A or IPO, and evolving as a public company. To find out more about the lifecycle stages, go here.

Pat Voll is a vice president at RoseRyan, where she mentors and supports the dream team, and heads up client experience, ensuring all our clients are on the road to happiness. Her article about creating a winning culture in the midst of the talent war was recently published in Accounting Today. Pat previously held senior finance level positions at public companies and worked as an auditor with a Big 4 firm. 

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Finance’s role in unlocking value for private equity portfolio companies

When private equity firms choose their investments, they see promising potential. The entity that becomes their portfolio company may have hit a roadblock and is in need of a transformation. An entirely new strategy could be in order. Behind that strategy is a strong finance team that plays a pivotal role in helping the PE firm realize the full potential of that new investment.

Over the past 15 years, I have had the opportunity to help PE firms translate strategy into financial decisions for their portfolio companies. It’s a fascinating CFO role, as there are so many unique factors at play with every company—and there is a sense of urgency, a sense of purpose. Every operating plan, every exit strategy is different. All parties (new investors, old investors, the management, the board) have a vested interest in getting the company moving in the right direction. With the right kind of finance guidance, and alignment around a well-thought-out set of objectives, the company can move where it needs to go.

The CFO in this type of scenario—whether it’s outsourced or a full-time position—has responsibilities to investors, the PE firm and the portfolio company, and is entrusted with improving the company’s operating performance, uncovering efficiencies, boosting productivity, executing the game plan and, ultimately, unlocking value.

The following activities are critical:

Setting up a strong governance foundation: Jumping in to lead the finance function at any time requires leadership skills, technical know-how and an action-oriented mindset. There are a lot of moving parts, and it’s important to focus on alignment toward the goal, creating the right set of performance-based metrics and compensation, and setting up the right practical processes to aid in decision-making.

Laying a strong foundation of financial operations: Timely, accurate financials are essential for understanding the state of the business. These are made possible when accounting systems and processes are up-to-date and internal controls are set. A robust finance function will help the company meet its compliance and regulatory requirements, ensuring the private equity firm can stay focused on the overall strategy and feel confident that the company is progressing rapidly. When the pace of business is fast—as it tends to be in the private-equity world—underlying data needs to be accurate for effective decision-making.

Victory lap
Sure, the transactions make the headlines, but what excites me is the transformation of a company to meet the PE firm’s strategic objective. Every journey is different and sometimes the timeline is several years. The wheels put into motion vary considerably based on the situation. If you do it properly, your efforts will be rewarded and your investors and management will have realized significant appreciation, and that’s exciting stuff.

Terry Gibson heads up RoseRyan Private Equity to help PE firms extract more value from their portfolio companies. A founder of Steel Partners Corporate Services, he has been focused on serving the PE industry for over 15 years. He was the CEO of CoSine Communications and BNS Holdings, and he oversaw the finances at Calient Networks and served as controller at Lam Research.

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