Don’t Go Too Big! (February 2008)

There was a saying during the .com boom, “Go Big or Go Home”. It meant that anything worth doing was worth doing in a big way. Hence, many of the start-up companies of the day had world domination on the mind and were spending huge amounts of cash to invest in growth.

Ironically, that very philosophy was part of the reason that many of these companies failed. While it’s smart to plan for growth, there is a huge difference between planning for potential upside and acting as if it that upside is a certainty. In the first case, the thought process is “How will we respond if volume doubles or triples during the next 12 months? How will we staff, obtain additional office space, meet customer demand, etc?” Generally, that’s a smart way to think (and should be accompanied by some downside thinking as well).

On the other hand, when one assumes that growth is a certainty, then the attitude tends to be “let’s just buy it now as we’re going to need it someday anyway”. The spending associated with that thinking can (and has) crashed companies. While this phenomenon was typical of the .com days, it can still be seen today when companies are exclusively focused on growth to the exclusion of day-to-day operations and current positive cash flow.

There is a cost associated with planning for growth that doesn’t occur. The costs show as over inflated rents due to too much space and excessive build-out costs, software systems that can support substantial growth but are excessive for current operations, employee benefits packages that are not “market” for the company’s size, uncontrolled spending of “future” profits, and a myriad of other costs.

While planning for growth is an important step for any business, “assuming” growth and needlessly committing to costs substantially in excess of those required to support near term business can be devastating for companies. It can starve the company of resources required for current day operations. The company is then forced to either “do without” or face the option of taking on additional debt or equity (dilutive of current shareholders) in order to fund those costs.

The best way to avoid this trap is to plan spending based upon milestones or accomplishments. Linking spending to milestones which measure success (particularly marketplace success) is an approach that will assure you (and investors) that there is a reason to be optimistic about the future. Putting these milestones in writing will force one to measure actual results against expectations and therefore force a realistic assessment of the business compared to those expectations.

While I recognize that this approach is less exciting than the approach which assumes big growth and therefore big spending, it’s far more likely to keep you and your company in the game much longer.

As most of the .com companies learned, when they went big (too big) and the result was that they indeed “went home”. Remember, if you go too big, you will likely go home.

If you need help with your business, financial plans, or goal setting, please give me a call at (314) 863-6637 or send an email to And, remember . . .
your cash is flowing. know where.

Copyright @ 2008 Homza Consulting, Inc.

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