I’ve seen companies actually grow themselves into bankruptcy. They tapped into a gold mine of demand and couldn’t mine it fast enough; they didn’t have the business infrastructure to manage the operational and financial load. As a result, their organization became bloated with too many marginally productive people spending their time putting out “fires”. (By fires, I mean angry suppliers, customers, cash flow problems and overworked, frustrated employees.)
At the beginning of a “boom” in the oil exploration business, I was hired as controller to get a company on track with their accounting. The owners had become successful promoters and were making exploration deals faster than their legal or accounting departments could keep up. Their “land man,” who negotiated mineral leases with landowners, had also become their de facto drilling operations manager. Ed was doing a fine job lining up contractors to drill oil wells, but he was on the road most of the time and unable to keep up with reviewing and approving invoices for work done by all of the contractors. (Bear in mind that this was Houston in the middle of an oil boom, and there were “shady characters” making a good living by sending out fraudulent bills to oil companies that blindly paid any bill that came through the door.)
The solution to the accounting manpower problem was to get Ed help — four very nice young ladies who were going to become the purchasing department. Unfortunately, Ed was so busy lining up drilling contractors that he didn’t have time to train them. They sat around the officefor almost six weeks, obviously feeling useless and concerned about their future employment, before Ed had time to train them. At that point, they began working long hours to catch up with the work that had built up. Fortunately, the owners realized that need to slow down.
My next engagement was with a much larger company with the same history of promoters running out ahead of their organization’s ability to deliver on their promises. They were a public company with more than 20 limited exploration partnerships through Merrill Lynch, two pipelines, a gas processing plant and two exploration and production companies. Even with more than 30 accountants, an expensive data processing department and customized accounting software, their accounting was in shambles.
As I began sorting through the issues, I found that the “customized accounting software” they used was worse than useless. It was actually creating more manual work for accountants to enter and manually compile any worthwhile information. I believe that the original decision to go with the “custom software,” expensive computer hardware and IT staff had more to do with impressing potential investors than with organizational competencies.
I identified excellent commercial accounting software developed by a company with operations very similar to our own but on a much larger scale. The application ran on a much less expensive computer platform that required no IT staff. Within 18 months, our accounting department went from 33 frustrated people to 10 highly competent staff members working with an accounting system that gave the right information with little effort on our part.
Over the years since that time I have seen businesses waste tremendous amounts of time and money trying to take short cuts, rather than obtain expert help to plan for growth. I’ve watched them become desperate for financing but unable to produce financial statements. I’ve witnessed businesses spending hundreds of dollars a month on bounced check fees and unable to afford the accounting to stop the bleeding.
That is a hard and painful road to go down. Take the easier path: plan for growth and don’t run out ahead of your organizational capabilities just because the business is there. Give your staff time to get it right, in a cost effective manner, so that you aren’t just a shooting star with a spectacular, but brief success.