15.2 Growth problems

Management mistakes

Of course, start-ups often make management mistakes in pursuing growth.

A classic first mistake is in the choice of a product or service—and/or even worse, a market—with no potential for growth. The only safeguard against this mistake is to conduct careful market and competitor analysis (See [link] Chapter 13) to estimate the total market potential. This analysis must be complemented by the choice of a strategy for capturing the market with which an assumed market potential can be developed, taking into account the given financial restrictions. A second mistake is the failure to choose one of the aforementioned growth strategies early on. A third mistake is to not recruit competent and professional staff to implement the planned strategies. A fourth mistake is not to align product-market growth strategies with the firm’s other strategies, especially finance, HR, and organizational strategies. A fifth mistake is to choose the wrong finance model. Here, an almost classic mistake is for firms to refinance long-term fixed capital with short-term returns, or with short-term revolving loans. A sixth mistake is to force growth. If growth occurs too rapidly, the firm is in danger of losing sight of the risks involved in the individual activities of the value chain, even when this growth can be financed. Here, continuous development is better than erratic growth (cf. Hutzschenreuter 2001), because it enables management to fill the gaps in their knowledge. We will go into several of these management mistakes in more detail in the following.

Incompatibility of growth strategies and organizational structure

The growth of start-ups must be planned, and supported by one or more of the above mentioned strategies. It is a significant growth mistake to do without planning and strategic development. However, even when these mistakes are avoided, and growth strategies exist, managers tend to overlook the fact that there is a connection between the chosen strategy and the particular organizational structure of the start-up. This oversight is a serious impediment to growth.

Firms which are still small and striving to grow should choose team structures, or, if necessary, tight centralization as a structure for their organization so that they can handle knowledge management, and decision coordination and implementation better. The lack of team management and networking in the start-up and consolidation phases hinders growth, as the experience of start-ups from Silicon Valley has shown.