Balancing the Scale: Lessons from those who found growth after difficult days
It feels like Uber came out of nowhere. Aiming to disrupt the taxi and personal transport industries and then succeeding on a scale most thought impossible, founders Garrett Camp and Travis Kalanick were swamped by investors and customers alike during their formative years.
But that rapid growth didn’t come without issue. In an article published on The Conversation in 2017, Senior Research Fellow at the University of Nottingham Murray Goulden wrote “There is a great tendency among commentators to focus on the capabilities of Uber’s app when making sense of its explosive growth across the world. This is a mistake. The company has never made a profit, and in 2016 alone lost nearly US$3 billion.”
Are you thinking about finance for your business? See how RedZed can help, and find out if a RedZed loan is right for you.
The company was rocked by claims of harassment and sexual misconduct, and the online #deleteuber campaign of 2017 damaged the brand’s reputation further.
Uber’s solution? Hiring outside experts, including former U.S. Attorney General Eric Holder, to investigate the allegations and the company’s culture, and make recommendations for change. The company is now planning to have an initial public offering in 2019.
So, what can this teach self-starters about navigating growth?
“As a mathematical-physicist by training, I take a purely mathematical view of growth, namely that a chosen variable (like profit) is increasing over time,” says Nick Birrell, adjunct Professor at Monash University.
“Where it gets interesting in business is what that variable or set of variables is that you want to see grow.”
Professor Birrell, an advisor to venture capital firm Innovation Capital and a number of tech start-ups, believes that the key to ensuring growth is to develop and implement a strategy that makes it clear which aspect of your business you want to grow – and deciding how you can achieve this while ensuring your business remains viable.
Sticking to the plan
When we surveyed Aussie self-starters for our report on The Truth About Growth, we found that 68% of self-employed Australians believe growth is important to them, but 85% have no written plan in place.
Don’t lose your head during periods of rapid growth. While it’s important to put the effort into expansion, it’s just as important to stick to a plan and keep up a culture and reputation you’ve worked hard to achieve.
Professor Birrell believes there are so many distractions starting out in business that it is very easy to lose focus, and have multiple excuses for having done so.
“I have become convinced that the most important discipline required of a self-starter is focus,” he says.
“Knowing the goal, how they are going to get there and then maintaining focus on it.”
There’s a lot that self-starters can learn from companies that successfully navigated through difficult periods of rapid growth. Here’s one more example you might choose to take on board.
Not too big to fail
There’s no doubt that Amazon are a huge deal.
Their size and scope has seen shoppers flock to buy everything in one place, and has seen chief executive officer Jeff Bezos the target of online attacks from President Donald Trump.
“Profit is not the only variable that you might want to plan to grow,” says Professor Birrell.
“An outstanding case in point from a very big business is Amazon, where scale as measured by revenue growth has been prioritised over profit.”
This choice to grow revenue over operating income means that every expansion or acquisition Amazon makes comes with a high level of risk.
This was proved in 2014 when their spending on companies like LivingSocial, and new arms like Amazon Web Services, AmazonFresh and Prime Instant Video, saw the company post a loss of $396 million.
“For years, Amazon investors have been willing to accept thin profit margins and even losses as the company invested in new businesses,” wrote Jay Greene in The Sydney Morning Herald.
“But they’ve increasingly become dissatisfied with the company’s red ink, and overnight they battered the company’s shares in after-hours trading.”
The bad news saw Amazon shares drop by 10 per cent.
“We’ve been investing in a lot of areas across the company,” Amazon chief financial officer Tom Szkutak said in a conference call with journalists after the company released the results.
“We do have a lot of opportunities in front of us; but we do have to be selective on those opportunities.”
What has benefited Bezos and his team is the ability to take hits and losses with pride, and learn from the mistakes they make. No matter how passionate you are about your own business, money matters. So what can you learn from this?
Professor Birrell is pragmatic about the importance capital plays for self-starters.
“One of the most common reasons for the failure of small business is running out of cash, or cash-flow problems. Having a realistic cash flow plan is an essential to avoid being blindsided by a sudden cash flow crisis,” says Professor Birrell.
References:
https://theconversation.com/uber-cant-be-ethical-its-business-model-wont-allow-it-85015
