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Funding and Scaling - Your Business's Growth Trajectory Depends On It.
Funding – every business needs it. In today’s competitive, lightning-fast concept-to-market business environment, building a scalable corporate competitor by bootstrapping is a gigantic challenge - primarily (but not exclusively) because time will not allow it. By the time marketing, production, financing, and logistics are in place, markets have moved on.
For the entrepreneur willing to dive in, commit and penetrate a strong idea to fruition for the next 5 years(or longer), it’s wise to consider outside and professional financial assistance and business acumen to facilitate your goals.
Up until the 60’s, funding for new projects and expansion plans was limited and kept at bay; executives preferred funding from profits and maintaining control of the operations of the corporation. As we moved into the 80’s, the desire to expand metastacized to a thirst for growth and supremacy; what now brought growth goals within quick reach was a business plan template focusing on cash flow rather than profits; that as long as cash was available to satisfy loan requirements, and the company watched its Weighted Average Cost of Capital (WACC), then added debt or equity facilities were justified.
Now funding is required as a matter of necessity to capture fast moving opportunities.
As a start-up moves to emerging to industry-leading, its funding requirements, along with operational and human resource requirements, will change, and the evolutionary success of the business rises and falls on the ability of the leaders to maintain an operational foundational upon which to build a bigger business footprint.
To ensure that the company is able to scale well and at the same time prevent the mistakes that lead to the burn-out, internal quarreling, and financial malnutrition of less prepared concerns, we list what we feel are the most important planning considerations of the company intent on increasing its footprint beyond domestic jurisdictions.
Strategic, Financial, and Functional Management
In their book Venture Capital Financing, Laura and David Gladstone present management as the most important element in a company’s growth, not only at the Venture Capital stage, but beyond the IPO stage. Strong management will be able to conceptualize and implement the groundwork needed upon which will grow the organization’s component parts.
Top management of key areas are experts in defining the strategic direction of their functional areas, collaborating with organization peers to ensure (hopefully) seamless integration of the strategic plan, and championing the message down the organizational chain, providing transparency – now an important element precipitating buy-in of organizational employees.
Top management balances relationship (or exposure) building with operational and functional leadership. They are simultaneously assessing the validity of the current strategy now while predicting and laying the groundwork for the next phase of growth. Their visionary leadership must complement their operational acumen in order to sustain the company through growth phases. If top management continually does these things, progress will surely result – not always at a constant upward trajectory, but the net result will remain positive and sustainable.
Access to Funding
From the start-up through to emerging and mid-market stages, top management, to the best of its ability, positions the company so that it has access to funding. This invariably requires a strong network that can be accessed as needs arise, but also the combined skill set of operational/functional leader and accomplished networker.
Act Now To Get Our Value Pricing Adjustment on Audit and Review Engagements For Your Business
Well-connected management just makes the job of funding at the venture capital stage easier. Top, credible management with a successful track record will be expected, along with a solid business model that can survive the excessive reporting and compliance requirements of the public market while providing sustainable returns for its stakeholders.
Patience and Movement
Especially at the IPO stage, the ability of top management to progress the company and the IPO process, as well as maintain the focus of the company and/or functional area for which s/he is responsible, will determine the overall success of the IPO and the ability of the company to come through the other side cohesive and operating within established parameters.
When times get tough for the company (ie: lack of revenue, need to do lay-offs, another company encroaching on what you thought was patented and airtight) top management provides balance and perspective and, for those looking around, gives a patient countenance that frames the internal conversation and provides the context within which the company progresses through hiccups to arrive at strategic benchmarks. As disciplinary examples, this facet of their management arsenal may be the most vital element which they bring to the corporate table – to see the company through tough times and tow them to points of success which they – and possibly only they - saw as always within reach
Growth chases funding
As the company evolves through the funding ecosystems of venture capital and then IPO, the money increases, but so do the compliance and due diligence requirements. The balancing metric to this extra work is, of course, increased potential growth. Provide the extra money the IPO will provide, and mix it with a great strategy to scale and a strong, proven management team, and the result – hopefully – will be a new major industry partner chasing the leaders by bringing unique offerings to it’s target market, exceeding the expectations of an existing product, or a combination of the two.
The IPO stage, to the extent possible, should be taken in and experienced. Like the opportunity to play in the Superbowl (although few are able to see it this way), preparation along with securing the right team to maximize the IPO process, will enable the company to leverage maximum exposure and generate a strong public offering.
IPO hopefuls have to set up their business as a public company years before they actually start the IPO process, so that when the time comes to sell the public, the public sees a well oiled, structured and profit driven concern that impresses them.
Compliance requirements such as quarterly financial statements, audited financial statements, monthly growth projections, and monthly departmental reports should be commonplace, the intent being that all facets of the company that contribute to the bottom line are regularly monitored and traced.
Essential functional areas that the company needs to formalize, meet regularly on, and staff appropriately include:
- Operations / Production
- Finance
- Marketing
- IT
- Administration
If looking at your company’s product life cycle (ie: the time from when it’s produced to the time it’s transported to your customer), we can imagine the following chronological timeline:
A. Marketing
B. Operations
C. Administration
The product cycle begins at the marketing phase, where new customers are brought in. Production tales over, delivers the product, and hands the baton to administration, which includes
customer service and retention. The IT and Finance areas have responsibility throughout the product cycle, and remain active to sustain the business and it’s ability to win more customers.
Since each of these functional areas are integral to the ultimate delivery of the product, each area needs to have its own division, with leadership, staffing, and regular meetings to keep everyone on board with it’s distinct strategy and how it fits into the overall corporate strategy. Each division needs to go through regular internal auditing cycles – prospective public investors and the IPO team will expect to see adherence to compliance requirements even though they are not yet required to do so.
Sustaining through a successful IPO has as much to do with preparing the company beforehand so that it can weather the extensive scrutiny once the IPO process begins. If done correctly, the company has a great future ahead of it as a credible industry player disrupting the space and chasing the leader.
Comments re: factors to consider when going through an IPO are welcome.
Nicholas Kilpatrick is a partner at the accounting firm of Burgess Kilpatrick. He leads the firm’s consulting and strategy practice and works with companies to enhance their Analytics, Forecasting , and Data Optimization functions. The practice’s focus includes quantitative forecasting, corporate and unit strategy and planning. Please visit our website at www.burgesskilpatrick.com or on Facebook at www.facebook.com/BurgessKilpatrick for more information on our firm.
