Why growth is difficult for entrepreneurs

Growth can be difficult for entrepreneurs because the work that makes the business more robust does not always produce a visible increase in sales. That was my point in September 2014. I meet many optimistic entrepreneurs, and I wanted to explain why, in my experience, a business often requires a long, sustained effort.

Growth for entrepreneurs is a marathon

I joked about business plans that made it look as though you would become a millionaire after three months. I could not say it had never happened, but that was not the path I knew.

My picture was more like three to seven years before you had built something worthwhile, even with a good idea, fighting for it and a lot going as it should. That was my assessment at the time, rather than a survey of how long every business takes.

I divided the journey into a few phases. First came the idea, finding the right people, funding and the business plan. Perhaps you started alone or with a partner. Even that took time.

The first employees changed the finances and daily life

In my view, the first big hurdle was hiring employees. I thought it was expensive in Denmark and voiced my criticism of taxes and salary levels.

I used a monthly salary of 25,000 kroner as a hypothetical example. But the salary was not the only cost. I mentioned holiday pay, holidays, parental leave, public holidays and other days off as things you also had to consider.

That was my spoken overview from 2014, rather than a current payroll budget or a precise description of all an employer’s obligations. The point was that it cost more than the number you first wrote next to the word salary.

And then came management. That could be difficult if you had never done it before. At the same time, you still had to raise capital and grow revenue.

The prototype needed to be quick to change

I mainly focused on web businesses, which were the ones I knew best. You could start with a prototype, put it online and work your way forward, perhaps from your parents’ garage.

You watched every penny and tried to do things quickly and cheaply. I thought that was smart because the first product rarely hit the market perfectly.

Perhaps a handle needed to be on the other side. Perhaps a journey through the website needed to be reversed. Perhaps the online shop had good products, but something else needed changing. You learned as you went.

In that phase, I did not think it always made sense to make everything very robust from the start. You would end up taking it apart and changing it many times.

It was an exciting phase of product and service development. Hopefully, you could also feel that good changes increased revenue. I compared it to a diamond where you began chipping away the dirt and seeing something sparkle underneath.

Then came the phase I called the killer phase

The next step was consolidation. That was the phase I thought many people underestimated and which could make it hard to move forward.

In a web business, you could discover that backups also needed to be done properly and include employees’ computers. The prototype that had worked with a little traffic might not cope with the traffic you were now getting.

Then you had to rebuild parts or, in some cases, start again with a more robust solution. It was expensive and demanding, even though you already had a product customers used.

I also gave an example from manufacturing: Something you could make individually on a lathe might require proper tooling, different production methods or outsourcing when volume increased. It was a different task from getting the first widget to work.

Customers did not necessarily see all the new work

At the same time, the organisation grew. You could not stay in the garage, had to find office space and could not always furnish it with second-hand items. I mentioned IKEA as the next practical step.

You could also discover things you had not sorted out, such as insurance. I also used an example involving shareholder loans and money paid to yourself that needed to be handled differently. Those were historical examples of getting things in order and administration, rather than guidance on current rules.

My frustration was that costs and complications poured in while the customer often still experienced the same product or service.

The customer could not necessarily tell whether a widget had been made by hand or by a machine. Or whether you sat at a second-hand kitchen table or at a new desk in a proper office.

A better technical setup could be important for handling more traffic, but if the experience was otherwise the same, it was not automatically something the customer noticed or paid extra for. It was that difference between the company’s effort and the customer’s experience that I wanted to highlight.

It could feel like hitting a plateau in training

I compared it with starting to exercise. At first, you could feel clear improvements and get a lot of energy from them. Later came a slog where you still did the work but did not experience the same progress.

I used four to six months as an illustration of the transition. It was a metaphor about motivation, rather than a training plan.

The business could hit something similar. More revenue now required more people and more resources. Then came the real test: Could what you had made work at a kitchen table with few costs also support a larger organisation?

Management also had to keep pace with the size

At around 20–30 employees, I imagined another challenge: Middle managers and people who missed direct contact with the boss.

I caricatured the employee who said it was not like the old days and that they now had to speak to a middle manager. It illustrated how the old way of working together did not necessarily suit the new number of people.

At around 100 employees, you could hit another wall, where everyone no longer knew each other. I made a polemical comparison with large companies such as Topdanmark and Danske Bank, and with spending more time fixing bugs and dealing with old systems than writing new code.

That was not evidence of conditions in those companies. I used them as illustrations of how a startup eventually acquired many of the challenges of an ordinary business.

Progress could come in waves

That was why I said entrepreneurship was not a 100-metre sprint. Perhaps a triathlon was an even better image than a marathon, because it required several different disciplines.

It could be both exhausting and exciting. But if you loved things moving fast, you also had to be prepared for phases where things took a long time and where it could feel as though you were going backwards.

I compared the life of a business to a share price moving in waves. In my experience, even a good journey was not a straight line upwards.

It was during the downturns and the long slog that you were tested. My encouragement was to understand that the slow phase could be part of the job of building a business, and to be ready for more than the excitement of the first prototype.

Also read Iværksætter til jeg dør about my experiences of building businesses. As the business grows and takes on more employees, Min vej som leder is an obvious place to read more about management.