Case Study 5: Our brilliant idea worked! Now how do we financially manage & sustain our rapid growth?

Failure is frightening. So, too, can be unexpectedly wild success.

Overview: E-commerce is an avenue attempted by many companies in the past decade, most with the failure rate of running a restaurant. When it succeeds, though, few businesses scale with the speed of an e-tailer. Such was the case with this online firm, which hit a home run with a young, entrepreneurial staff with no plan beyond surviving today.

Analysis: Financing, operations, staff, external partners and vendors all were an afterthought that needed to quickly be established and solidified with the company being on the verge of either profound or short-lived success.

This was an interesting case where the management team looked to the stronger finance head to help formulate and implement solutions to all of their company-wide issues, in part because they were uncertain how to finance growth without a lot of available cash. One of the particular challenges in a company like this is managerial limitations imposed by the entrepreneurial founders, who find themselves in roles they have neither experience nor comfort in. It then becomes imperative to bolster other facets of the business while simultaneously (and tactfully) mentoring and training the managers.

First the company’s books were righted and analyzed to determine profitability by product, region, customer type, etc. to help focus the newly appointed marketing head. These analyses also helped formulate hiring decisions on the operations and customer support fronts. Vendors taken for granted were re-examined and services were bid out to realize significant cost savings. New capital expense purchases were treated similarly. Additionally, credit facilities were established with both vendors and banks to support growth initiatives. Oh, and along the way a finance and accounting department was structured from the ground up, with investment services to generate returns on free cash flow.

Result: The company’s great idea didn’t sputter out when it encountered growth challenges. Staff was increased in a staged manner, cash and credit utilized to maximize cash flow and support growth initiatives, and some founders flourished in managerial roles once structure was established. Within a year outside investment interest began surfacing and the company prepared for new challenges.