Growth is great — it’s what every startup venture wants. But as many seasoned entrepreneurs can tell you, be careful what you wish for. If your operational processes and systems aren’t equipped to handle it, growth can become a source of headaches and heartburn. As a former general counsel and vice president of an alternative lender, I’ve learned a thing or two about managing growth over the years. I watched as my small company quickly grew its business lending volume two and a half times over, which required us to adjust processes to avoid the pitfalls of growth. When I recently spoke to a group of aspiring entrepreneurs at a Envestnet | Yodlee Incubator boot camp, I advised startup founders to keep this idea in mind: Achieving growth is hard, but without growth, nothing else matters. The story I told them stemmed from my time at Funding Circle, a marketplace that matches companies seeking capital with investors seeking returns. In my talk, I set forth several key metrics that Funding Circle used to measure and manage its growth:
- Volume: Funding Circle examines how actual volume compares to targeted volume and budget. Where is the volume coming from by channel? By various market stratifications (industry segments or credit grade, for example)? Is loan volume meeting investor criteria? A big challenge is tracking the status of the supply and demand “funnels” and striking the right balance – ensuring there is enough investor supply to meet borrower demand and vice versa.
- Efficiency: Customer acquisition costs are a big focus of the firm’s equity investors. Which way are those costs trending? How are they being calculated? The company’s goal is to increase gross margins and customer value. Other measures of efficiency include effectiveness of processes against performance baselines, and the timing of loan throughput from origination to funding.
- Sustainability: Does the company have an effective risk management process? Key indicators of sustainability are the company’s ability to manage credit performance issues (delinquencies and defaults), compliance and operational risks, including fraud mitigation.
- People: It's not all about processes. Funding Circle has metrics in place to monitor people as well – including employees, customers and investors. Morale of the people you work with is critical to sustained success, and operational glitches can damage it. The company also looks closely at net promoter scores – how many customers answer positively (versus negatively) that they would recommend the company.
The key question to answer is this: Are we growing the right way? In Funding Circle’s case, that meant the company is growing volume, gaining efficiency, managing risk and keeping customers and employees happy. Having a system of metrics and measures that tell you how your company is performing against goals can help you manage growth and anticipate the changes that growth inevitably brings. The challenge is to instill a “metrics culture” in which the measures of success are clearly defined, agreed upon and followed. If your growth starts taking your metrics outside acceptable parameters, you may have a problem. My suggestion: Keep it simple. Focus on the top three goals you really want to accomplish, make sure everyone knows what they need to do in order to accomplish those goals, then measure and monitor performance against those goals continuously as you grow.
