There are few more self-evident financial truisms than the assertion that growth is a good thing for a company. But for a small business just getting started, an overwhelming amount of it can present problems. That’s what happened to John and Kira’s Jubilee Chocolates, a private Philadelphia company that now has 10 employees and that took in $750,000 in revenues last year.
To meet the demands of unwieldy growth, co-owner John Doyle went on a hiring spree between Valentine’s Day 2003 and Christmas Day 2004. But Doyle, a former banker, and his partner and wife Kira Doyle, a teacher, were still wet behind the ears in terms of efficient chocolate production. As a result, they lacked the experience to direct the employees they hired to perform in the most productive ways.
The Doyles also had too many employees in the summer, when chocolate-buying slides from its winter-holiday peaks. They hadn’t yet learned that the business actually needed seasonal employees who would be prepared to work only from August through February. Thus, the company’s labor costs from 2003 to 2004 were about 38 percent of revenues, compared with a targeted 20 percent, says John Doyle.
Those difficulties, ironically, sprung from an unexpected stroke of luck. In late 2002, Doyle was still coping with the dual challenges of learning professional chocolate-making and running a business when opportunity came knocking in the form of Ruth Reichl. The editor of Gourmet magazine tried Doyle’s product at a chocolate tasting in Manhattan and a few months later put Jubilee Chocolates on her magazine’s February 2003 cover.
Orders poured in and continued to do so as The New York Times,BusinessWeek, and Money, among other publications, wrote about Jubilee. Administrative issues shifted to the back burner. The books would have to wait; there were chocolates to make. Besides hiring staff, Doyle worked seven days a week and enlisted friends and family to get the work done. But demand didn’t let up after Valentine’s Day. A year later the Williams-Sonoma catalogue picked up the chocolates, and business exploded even more.
Today, Doyle says he’s only just about finished “mopping up” after that maelstrom. “A lot of administrative stuff — accounting, paperwork — didn’t get done,” he says.
To be sure, such unwieldy business surges are hardly mounting in epidemic proportions. Says small-business consultant Andrew Clarke of Chicago-based Ground Floor Finance, “It’s an exceptional company that has unmanageable growth.”
Nevertheless, many fledgling businesses can experience demand beyond their managers’ ability to cope. When that happens, the ensuing scramble can be just as harmful to a company’s fortunes as a slump, experts say. Besides the obvious perils of failing to fulfill orders and administrative commitments, business can suffer from uninformed or snap decisions made by harried managers.
Any Port in a Storm
As the Doyles’ experience shows, hiring can be a big problem area. Clarke recommends using temporary employees for lower-level, labor-intensive jobs like manufacturing or fulfillment whenever possible. Temps should be used at least until the beginning of the rapid growth period or until managers have their labor needs figured out, he adds.