To Grow or Not to Grow: The Founder’s Dilemma

To grow or not to grow is a key question facing founders once their business is off the ground. Noah (not his real name), a very enthusiastic and clearly effective entrepreneur in Kenya, just loves to sell. He wakes up fully energized by the idea of getting out there and offering customers great deals. He is enterprising and keeps three different little businesses going.

Balancing Growth and Focus

The decision to grow or not to grow is a complex one for founders. Growth can provide access to better supplier rates and resources, but it also increases vulnerability to staff turnover and competition. 

Noah has great plans to employ staff, grow a franchise network, and expand. The danger, of course, is that as he grows he will have to spend more and more time recruiting and managing staff, installing systems to prevent them from defrauding him, and looking after the growing burden of administration and regulation. This could leave him with no time to indulge his passion to sell. So either he has to be very smart in delegating all that other stuff to people he trusts and can train, or give up the ambition to grow and rather just enjoy life selling on his own.

But being small is limiting. Noah needs capital to secure his suppliers at favourable rates. Small companies are more vulnerable to losing key staff. Noah may invest time in training a bright young recruit with a view to then being able to spend his own time interacting with clients, only to have this person gratefully leave to launch his own competing business, taking his customers with him. 

Keeping ahead of the competition that will follow any success can require further investment, especially in talent. 

The Risk of Scaling Too Fast

If Noah’s company does reach medium size and he wants to grow further, he may find himself subject to conflicting incentives. Investors are incentivized to generate the highest return possible from their portfolio. If one of their companies can hit unicorn status, that covers several who fail on the way. So they may incentivize founders to aim for reckless growth. 

Founders are then faced with accepting this risk to attract the capital, or resisting the lure of fabulous returns in order to protect their prized creation and more modest livelihood. Employees will almost certainly be on the side of less risk, to preserve their jobs.

So founders looking for ambitious growth without too much risk should be very careful to find investors who share their values and their view on long-term sustainability. It may be worth settling for a lower valuation to avoid unreasonable ambition killing the business.

The Management Challenge

The implications for the founder’s management team are both exciting and daunting. Significant growth also brings a need for new managerial skills. The excellence that brought them so far may not be enough to take them further. The bigger company will require a wider perspective on business strategy and the ability to identify and install systems and processes.

To avoid spans of control becoming unmanageable, some managers may have to let go of pet functions. Managers of teams may become managers of managers, with this significant shift from supervising people to coaching managers on how to supervise teams. The higher one goes in a company and the more formal power one has, the more it requires new skills of influence, collaboration, and subtle positioning that may be alien to a very effective supervisor.

Does Noah have the breadth of vision and cognitive skill to handle the increasing complexity? And he will need humility to keep learning.

Lifestyle Implications

The decision to grow a business also has personal implications. Noah must consider whether his family is prepared to face the increased pressure and time demands. Choosing growth requires courage, he must be willing to learn and adapt to new challenges.

It’s not quite an iambic pentameter, but to misquote Shakespeare: To grow, or not to grow: that is the question: Whether ’tis nobler in the mind to suffer the slings and arrows of attracting outrageous fortunes; or avoiding that risky sea of troubles, by modest ambition enjoy a life of comfort?

Jonathan Cook, a counselling psychologist, chairs the African Management Institute. This is adapted from a column for Business Day, originally published on 12th November 2024 here: https://www.businesslive.co.za/bd/opinion/columnists/2024-11-12-jonathan-cook-entrepreneurs-face-conflicting-incentives-in-growing-businesses/#:~:text=It’s%20not%20quite%20iambic%20pentameter,enjoy%20a%20life%20of%20comfort%3F 

If you’d like to read previous columns in this series or ask Jonathan a question please visit www.africanmanagers.com/jonathan-cook