Hazards of Hyper-growth
Business schools teach there is such a thing as growing too fast
Hyper-growth is a business dynamic that most entrepreneurs long to experience. It differentiates leaders from the rest. It delivers a team onto more stable financial ground, but carries with it some distinct challenges and significant risks.
Business schools teach there is such a thing as growing too fast, that a company can outrun its cash or create suboptimal product or safety risk, or even legal risk.
A number of factors challenge companies faced with hyper-growth.
Matrix Providers came up against hyper-growth challenges in 2017 and knew fuses could blow without attention and a plan. Ultimately, a few did blow, but most were recovered.
First, we're in this business largely because the DoD's (Department of Defense) medical staffing of a $1.9 billion annual spend. Moreover, our founders are familiar with the system and there's a safe harbor of a federal market with ample set-aside for small businesses like us. Every 1 percent of market share was worth $19 million in revenue, and we thought we could get to 2 percent or 3 percent of that market.
Running out of cash is a big risk for any growing company, but for a staffing company in hyper-growth, it is the most immediate and constant threat. Matrix Providers burned through it quickly, with payroll for medical professionals that reached $400,000 each annually (Matrix Providers has over 425 employees today). Our payrolls today are $1.5 million to $2 million every two weeks. We cannot miss a single paycheck or we’ll lose health-care workers.
We refinanced Matrix Providers six times in seven years, including personal funds, SBA startup and term loans, Colorado startup funds, factoring, asset-based lending and now, finally, a stable and scalable accounts receivables-secured line of credit from a D.C.-based lender who understands federal contracting.
We learned lessons like think ahead and your banker is your best friend. Transparent communication with your banker is key. We also learned to never cede financial control of our company to any one lender and to always have a Plan B.
Finally, we came to understand the value of auditing early and often. Lenders rely on transparency and clean books.
In hyper-growth, it is not affordable to lose and replace a key person mid-fight. In the early years, we hired only people we knew, which grew the candidate pool exponentially as we added staff. Internal referrals create bonds of accountability even across states that quickly reinforced individual effort and outcomes. As a virtual company, this is crucial.
With the accountability and collaboration intrinsic to Matrix Providers’ culture, the high staff stresses of hyper-growth are mitigated. Our people are our company. When we needed professional services – i.e., lawyers, accountants, etc. – we retained the best firms we could afford, even when we couldn’t. We hired the best to help us face forward with confidence and grow.
Our goals were unreasonably high and distinguished us. While the industry standard for staffing is 85 percent to 90 percent placement, we set a mandate of a 100 percent fill rate. That last 10 percent is hard, but we built it into the culture and became known for it.
During our hyper-growth, regulatory matters sometimes took a back seat, and that was dangerous and difficult to rectify. As we grew, we created an exponentially greater likelihood of mistakes, becoming a target for audits and serious six- and seven-figure penalties.
Now we know to stay vigilant and clean up as we go.
Ultimately we found that an entrepreneurial company can only grow to a certain size before it is threatened to break down under the weight of its own success. At about $40 million annual revenues, we took a year “off” (flat growth) to develop structure, training and compliance.
At the peak of our hyper-growth run, quality began to break down under the unrelenting pressures of high-volume custom work. At that moment of vulnerability, the market shifted to a lower-priced preference by (government) customers. Matrix Providers took advantage of that dip to assess, hire key talent, address all compliance issues, re-fit software platforms, hire and train the Matrix Providers management team and ultimately prepare for another hyper-growth run.
The results of pushing the boundaries of growth proved advantageous. No paychecks were missed, no regulatory infractions ensued and no contract failed. Like many battles, coming out on the other side made for a stronger and more resilient enterprise.
Dr. Bill Rivard is the CEO of Matrix Providers .