Helcim’s CFO Marjorie Junio-Read talks about Helcim’s bootstrapped roots, how Helcim has managed to avoid the growth trap themselves despite growing pressure from investors and ourselves (our mission is to be the most loved payments company), and the desire to stay true to a loyal customer base and business model.
By taking the steps outlined in this article, Marjorie hopes to help other startups to avoid the pitfalls of rapid growth and ensure long-term success.
Table of Contents
- What is the growth trap
- Signs that your business might be in danger
- How to keep your business afloat- advice from a CFO
- How to get out of the growth trap
- Final Thoughts
What is the growth trap?
Startups are often associated with high growth rates. However, this can sometimes lead to what is known as the "growth trap." Marjorie explains that sometimes, startups can become too focused on “expansion at all costs” and ultimately neglect other aspects of the business leading to telltale problems that can include cash flow difficulties, knee-jerk decisions, a compromised product or vision, and internal burnout.
Signs that your business might be in danger of falling into the growth trap
Every business is different, but there are some common signs that your business might be in danger of falling into the growth trap, risking stagnation or even decline.
Here are a few key signs or red flags to be aware of:
First, you find yourself continually chasing new customers and clients, instead of focusing on providing quality service to your existing ones.
Second: you're growing at the expense of profitability and either can’t identify the levers that you could pull to reverse this or can’t envision a scenario where it would be realistic to reverse this.
Your staff are stretched thin, your oscillation times are few and far between, and your people are burning out. (Read: how to avoid burnout at a startup)
You’re hiring bodies left, right, and center to fill the gaps. Dead giveaway: You’re hiring the wrong people.
You may notice that your sales are plateauing or even declining. This can be a sign that your current products or services are no longer meeting customer needs.
You're having trouble attracting and retaining talent. Often a symptom that your company culture no longer appeals to top talent.
You're spending more and more money on marketing without seeing any real results.
Finally, if you're sacrificing long-term sustainability for short-term gains.
If you see any of these signs in your business, it's time to take a step back and revisit the basics. Better yet, there are steps you can take to avoid falling into this trap in the first place — we will cover this next.
How to keep your business afloat- advice from a CFO
Get your ducks in a row before seeking investment capital
“Know who you are and what you do (and don’t do) really well before taking on investors.”
Marjorie explains startups need to strike a balance between growth and profitability, but before bringing in too many external variables. First, they must solidify a robust internal strategy that anchors things like who they are as a company and what value they bring to the table that makes people pay for that product.
“We knew who we were before we went out to get outside investors. I think that a lot of people try to jump on that train too quickly but then they don't really know who they are.
It gets away from them [the startup] as you get more investors and cooks in the kitchen telling them what to do,” explains Marjorie.
“That bootstrapping phase, while harder, focuses you on things like running a good business, figuring out who you are, and what kind of product or service you want to give to your customers. Once you've got something that you think might be solid, that might be a time to start looking for outside capital.”
Hitting growth targets without outside capital is no easy feat; however bootstrapping is a skill that, when cultivated, creates pathways for businesses to make the most with less.
Bootstrapping: a mentality, not a phase.
Every startup faces the same question: how can we make our business sustainable? In other words, “how can we create a business model that will allow us to generate enough revenue to cover our costs and ensure our long-term viability?”
There are many different ways to approach this challenge, but Marjorie explains why bootstrapping has been a key framework for Helcim, and how it continues to ensure success.
“It teaches you a discipline that can get lost when you just get institutional capital thrown at you. It's an opportunity to learn those fundamentals of building a core, profitable, and sustainable business model.”
She explains her background, coming from a more mature and traditional industry, gave her fundamental skills that, when combined with the bootstrapping roots here at Helcim, allowed her to “make it work.”
“I think that regardless of how much we raise in the future, I don't think you'll ever get that bootstrapping mindset fully out of us.”
There are many reasons why sustainability is key for businesses. For one thing, it de-risks certain elements of a business, which is attractive to investors and employees, but it also increases resiliency and the ability to weather economic downturns such as recessions.
“You learn to be really creative in terms of lengthening out that cash runway or finding different options to continue to make things work. Building those practices early will definitely serve us well, going forward.”
Check in on what's working and what's not working — often. Marjorie highly recommends reading The Lean Startup and explains that it speaks to a lot of the challenges that every startup and scaleup goes through.
The book describes a cycle of build, measure, learn, potentially pivot, then build, measure, and learn again.
“Ultimately, you become quicker by going in with an experimental mindset. There is an emphasis on measuring data, both quantitatively and qualitatively to gauge success which allows for a better launching pad for the next version.”
By reflecting on these insights, Marjorie explains, you can create quick iterations and better gauge the impact of current processes and strategies. “It can help color your decisions of where to lean in and potentially where to pivot,” she says.
“Then you don't get into this trap of building something for six months to a year, only to find out that that thing was not what anybody wanted and have to go back to the drawing board. Instead, if you can be more iterative and learn these lessons two or three months down the road, you’re able to preserve your capital and cash runway to do something else.”
Marjorie explains that data and quick 28-day project turnarounds are crucial metrics to staying grounded, avoiding the growth trap, meeting your goals, and “cutting out the rest.”
Hire the right people
“I may be biased, but I can’t speak enough about the benefits of bootstrapping in terms of the mindset, the approach, and the discipline that it gives you,” explains Marjorie. She believes alignment between financial management, staffing, and vision are essential.
Startups face many different challenges every day, and hiring the right people who understand this dynamic, wear multiple hats, and embrace the “chaos,” as Marjorie jokes, makes all the difference.
That’s not to say rest and oscillation is not key. In fact high rates of burnout is one of the key signs of falling into the growth trap — which is why offering flexibility and maintaining transparency is crucial, Marjorie explains.
Hiring the wrong people just to cover a gap won’t help you in the long run if it leads to high turnover rates because it is the wrong fit.
“I think everyone needs to go in with the proper expectations. We talk about being a startup with a capital S here; this is not a government job, it is not an enterprise company. The challenges we have will be very different from the challenges of a bigger, more established organization.”
“That works for some people, and it doesn’t work for others.“
“Going in and establishing expectations up front, and continuing to maintain that transparency in terms of where we're at and where we need people to pitch in and how things are going is really important.
And you don't necessarily have to have the perfect work experience or meet 100% of the job qualifications - we use what we call a bottom-up strategy and we’ve been successful thus far at building our team and our company this way. ”
Bottom-up hiring at Helcim means hiring junior talent, and as those individuals develop and take on more and more rank and responsibility, they will naturally fill leadership roles. In comparison, many other companies take the inverse approach by outsourcing senior roles with what is called, “top-down hiring.”
“You need to be willing to put in the time and be in the trenches with your team,” explains Marjorie, alluding to one of the core characteristics described in the Way of the Helcim, Helcim’s Culture book.
This approach to hiring is one of the key ways Helcim has managed to implement creativity and discipline from a budget perspective. When asked who Marjorie looks to hire for selective roles, she explains, “I'm always looking for people who are super curious and who are willing to take the initiative.
They don’t necessarily have to have the experience or the expertise in the thing I’m looking for. I think at a startup, you are going to wear a million different hats, and you’re not going to be an expert in all those hats. Still, the fact that you’re willing to roll up your sleeves, get in there and continue to poke around until you find something insightful is really important.”
How to climb out if you’ve already fallen into the growth trap
Chances are you didn’t throw caution to the wind and invest all your money in some growth- crazed obsession.
You took reasonable and calculated steps, took the leap, and invested heavily in growth. Only somehow you find you can't sustain it and end up stalling.
Cue major set-back. Sigh.
But, it doesn’t mean you can’t recover. Here’s what to do next:
First, let’s take stock of your situation.
Once you have identified the problem, you need to take action to address it. This can involve making changes to your business model, cutting costs, and refocusing on profitability. It can be a difficult process, but if you take the time to make the necessary changes, you can get your business back on track.
Take a step back and assess your business's core competencies by asking yourself these questions:
- What are you good at?
- What sets you apart from your competitors?
- What are your core values?
- How is your internal company culture lately?
- Have you been hiring the right people?
- What’s working and what’s not working (see previous section)
Chances are you’ve already asked yourself some of these questions. Others you might not have been thinking about since you’ve got a million priorities on the go. It’s time to do some internal reflection.
Like any wholesome character development moment: When you lose sight of these guiding principles, not only is your product or service suffering, but your “growth” will be mistargeted and likely fall flat on your market.
Ultimately: you’re falling short of your initial vision for your company.
If you’re already in the hole, it might mean making some tough choices, such as scaling back your operations or exiting certain markets in order to prioritize your core competencies. From there, you will need to develop another growth strategy and get back in the game in order to thrive long term.
Focus on fundamentals
Whether you’re looking to cut costs or already caught in the growth trap, Marjorie explains you can always benefit from a good understanding of the fundamentals. You can’t go wrong from getting a base understanding of your business's core drivers- an assessment that will help you navigate times of growth such as investing or tighter times when cutting costs during a recession.
“As CFO, you need to understand what components have the most leverage for your business - this might be team size, cost of acquisition, activation of customers, etc. Understanding these levers and the impact that these can have on your cash position is really important to get a handle on,” she explains.
Ask questions like:
What are your unit economics?
What makes you money?
What is your business formula?
What are the elements that drive growth in the business? _
As important as it is to understand where your income is currently being generated, many businesses can overcompensate and risk stagnation by over-relying on past successes to maintain current revenue levels. This is only the baseline from which to get back on your feet and then, through quick iterations and a sustainable business model and strategy, take calculated risks and steps to create growth.
Marjorie explains, by taking deeper measurements of your data and hiring the right people, you can create a plan to help your business break out of its growth trap and continue expanding.
While it’s exciting to see your company take off, it’s important to be aware of these potential pitfalls and take steps to avoid them so your business can be sustainable in the long run.
Here are the takeaways from this article:
Know the signs of the growth trap
Get a firm grasp of your internal mission and business model before seeking outside capital
Bootstrapping is a lifelong skill and mentality, not just for startups
Perform quick iterations and measure results with data to inform your strategy
Hire the right people
One key factor for sustainable growth is having a clear vision and mission for your company. When everyone from the top down knows what you stand for and why you exist, it makes it easier to make decisions about where to allocate resources and stay focused when things get hectic. This doesn’t mean you can never change course; rather, having a well-defined foundation provides a framework for making strategic adjustments as needed.
We hope this article has given you some tools to continue to grow in a healthy way and a renewed perspective on the value of bootstrapping your business.