Archive for the ‘managing’ Category

Rapid growth has a downside – the risk of the bubble going bust. The dotcom bust that happened in early 2000 is an extreme example of this. I am referring to this debacle rather than the foreclosure fiasco or economic recession as the dotcom bust saw the demise of hundreds of enthusiastic start-ups that had soaked up millions of dollars of investors’ money in a bid to cash in on the dotcom boom.

Plenty of small firms had set up shop overnight, managed to attract size able venture capital and then had fallen like ninepins when the market crashed. In other words, they went broke, having spent all the money and earned nothing close to expectations.

Simply put, they spent more than they earned, overlooked the importance of a short term model to earn revenue and did not pay attention to the adverse impact on the balance sheet.

Risk of “growing broke”
For any entrepreneurial venture, a perennial risk that the firm must keep in close check is the inability to pay the bills even when sales are increasing. That is to say, “growing broke”. As speaker Catherine Gibson observes, if you’re growing at a sustained annual rate of 15 to 20 percent or higher, running out of cash probably represents your biggest threat.