The 10 Commandments for building a

Growth Company

Submitted by:
Parvez Khan (Roll No.: 19-HR-11)
Vinny Grover (Roll No.: 19-HR-08)
Course:
Masters in Human Resource Development (MHRD), 2019-21

JBIMS MHRD 2019-2021

 Contents

• Introduction

• The first commandment: Picking Business Partners

• The second commandment: What Business are you in?

• The third commandment: Focus, Focus, Focus

• The fourth commandment: Preparing a Business Plan

• The fifth commandment: Hiring Smart

• The sixth commandment: Setting Standards; Rewarding Performance

• The seventh commandment: Walk before you run!

• The eighth commandment: Go with the (Cash) Flow

• The ninth commandment: Health is Wealth

• The tenth commandment: Seeing Around Corner

JBIMS MHRD 2019-2021

Introduction

To be successful, today's entrepreneurs must know how to pick partners, set objectives, hire
quality people, and expand their businesses methodically. This practical guide defines a
systematic, managerial approach to build a business and avoid the pitfalls that lead to failure.
Twenty-six real-life case studies breathe life into crucial matters such as cash flow and rewarding
performance.

Each of these 10 commandments add a whole new dimension towards building a successful
startup. These 10 commandments, however, will not automatically make an entrepreneur rich,
beautiful, handsome, fulfilled, or the like merely by following every word mentioned for success
comes with a lot of identifiable primary requirements and ingredients. The 10 commandments do
aim to help a person in weaving these ingredients together in a pragmatic way in order to make
the entrepreneurs avoid the mistakes made mostly by people starting new projects and ventures
during their early years when companies lack momentum and are still vulnerable to sudden
shocks and failures from sudden cash flows and shortage of functional talent.

Lastly, we come to understand that being an entrepreneur is a lifestyle choice and most of the
high-rise company founders confirm to this thought. Thus, these 10 commandments are aimed at
expanding the spirited way of living the life of an entrepreneur.

JBIMS MHRD 2019-2021

 The First Commandment: Picking business partners
Limit the number of people to those who can contribute directly to the
MAIN IDEA achievement of the company's objectives.

The key to the long-term growth and profitability of any new business venture is directly
dependent on the decisions of the management. Therefore, any new venture should not be
handicapped by a large cast of shareholders and managers who are each trying to take the
company in a different direction. Some people get caught up in the enthusiasm of a new project
that has little to offer and no proven experience in building a growth company. For example,
friends or a long-established lawyer or accountant may be invited to participate in the
establishment of a new company. The problem comes when these invited participants have
visions of future progress which conflict with the direction the company needs to go to make
progress.

Another trap is that often these people are given stock in the new company in lieu of a salary.
Then, if the person turns out to be in competent or a hindrance to the ongoing operations, they
are very hard to dislodge. Disgruntled early shareholders also seem to have a knack for being
able to sell their share holding at the worst possible time for the new company, and almost
invariably to the wrong people. It is far better to restrict stock ownership in the formative stages
of the company's growth to those people who are making a direct and unique contribution to the
company's operations.

JBIMS MHRD 2019-2021

Another area of focus for a new company is to establish a Board of Directors who are not simply
associates of the founder but who can provide seasoned advice based on real-world experience.
Ideally, the Board should deepen the management capabilities of the company by constantly
focusing on the pursuit of increased shareholder value. An effective Board serves as the ideal
sounding post against which the company's management can bounce new ideas and concepts.
Any new company faces a number of philosophical questions. Should the company be structured
to achieve high capital gains growth, or is the establishment of a sustainable but moderate level
of annual income preferred? Should the company take on debt? Is the driving force of the
company to achieve fame and fortune, or to make a contribution to society? Due to the fact so
many of these questions are judgement calls; it is much easier to have everyone working on the
same wavelength if the number of people making the decisions is kept to an absolute minimum.
New companies (especially those aspiring to become high-growth companies) can be pulled in a
number of different directions. The founder needs to be aware of this tendency, and compensate
by concentrating all decision making power in the hands of the people who will be most affected.

JBIMS MHRD 2019-2021

 The Second Commandment: What business are you in?
Define the business strictly in terms of exactly what is to be offered, who
are the target customers and why will these customers be interested in
MAIN IDEA
purchasing your product/ service

Typically, the establishment phase of a new business venture is marked by large amounts of
enthusiasm and vivid dreams of future prosperity. While any successful company needs these
elements, they should never outweigh the specifics that must be addressed by every company

1. What is the specific benefit customers will gain by purchasing your product or service?
2. Who specifically are your target customers?
3. Why will customers decide to buy your product or service in preference to anything else they
currently purchase?

In the final analysis, a new company will only succeed if it has products or services which meet
the needs of enough customers or clients. From one perspective, it is customers rather than
entrepreneurs that define the business and hold the key to long-term prospects. Any new venture
needs to resist the exceptionally strong urge to dabble in the number of fields which apply to the
founder and instead concentrate all resources on first and foremost establishing a cash flow
stream which will fuel future business growth.
The most basic business transaction is one in which a person exchanges money for your product
or service. If enough people are willing to do so, the business will succeed. If not, you will only
be in business for as long as your capitalization allows. Focus on the basics when building a new
company, and don't get distracted or side tracked.

JBIMS MHRD 2019-2021

 The Third Commandment: Focus, Focus, Focus!
Concentrate all available resources on the accomplishment of two or
three operational objectives within a specified time period.
MAIN IDEA

Most new enterprises have limited resources. To succeed, a growth company needs to compete
for explicit but limited gains in a competitive field of its own choosing before expanding into
other areas. Therefore, one key to success is to intentionally limit the objectives of companies in
the start-up phase. Several approaches to management exist, including:

1. Managing by Extrapolation
Under this system, a company continues doing whatever it is already doing profitably, and
expands its operations by adding more staff and increased production capacity. Existing trends
are extrapolated or extended upwards and outwards.

2. Managing by Crisis
This system suggests the boss is a problem solver. The manager waits for problems to manifest
themselves before springing into action to solve them. Energy and innovation are brought to bear
whenever and wherever problems arise in the company.

3. Managing by Subjective
Under this system, every employee does the best they can to accomplish whatever they think
should be done. One person masterminds the overall operation, and the cumulative efforts of
everyone add up to the company moving ahead successfully.

4. Managing by Hope
This is another form of reacting that is, of letting events control the management rather than the
opposite. Hopefully, be going in all directions at once something will work out along the way.

5. Managing by Objectives
The company sets operational objectives which are specific, measurable and time oriented. At
each milestone, progress is evaluated and measured against the overall objectives. Where
necessary, corrective management actions are taken to consciously and consistently move the
company progressively towards its objectives Management by objectives tends to be used more
extensively than other systems, but surprisingly successful companies have been established
using all the alternatives at different times. There are plenty of distractions in running a growing

JBIMS MHRD 2019-2021

company. In fact, there are so many distractions that it's easy to spend all your time on the
distractions and much on whatever really counts.

JBIMS MHRD 2019-2021

 The Fourth Commandment: Preparing a business plan
Work from a written plan which specifies who is responsible for doing
what within the company, and when.

Intentions which are not committed to paper are vague and ambiguous. When you write down an
operational plan which specifies how the resources of the company are to be applied, you create
a framework for coordinated effort towards a common objective. Everyone in the company can
then focus on their own specified role.
An effective business plan is the blueprint for building the company. It is a word picture of what
the company strives to achieve, why that objective is economically viable and how to actually
achieve it.

Business plans are most often visualized as documents for raising money. While that is one
purpose of a written plan, the act of actually committing an idea to paper does much to clarify
thinking, sweep away vagueness and crystallize objectives. The possibility of confusion,
misunderstandings and misinterpretations are also reducedthe key elements of an effective
business plan are:

1. Overview
A brief summary of the entire plan which encapsulateswhat the company is about in one or two
pages.

2. Concept

JBIMS MHRD 2019-2021

A written statement of the concept behind the proposed business clarifies the underlying
rationale for establishing a new business operation. It eliminates confusion and provides a focus
point around which the business framework can be developed.

3. Objectives
The long-term objectives of the business founder should form the first part of this section. It
should identify what the founder hopes to achieve within the foreseeable future. The second
aspect to cover in this section is the operational objectives. What sales, profit, market share or
other specific targets are to be set and worked towards? These operational objectives have the
effect of defining the nature and perimeter of the business in specific and measurable terms.

4. Market Analysis
This section identifies as precisely as possible the size, location and characteristics of people
who can and will buy the new company's products or services.
In some instances, successful companies have set out to create a market for a new product or
service. However, that takes extensive capitalization and resources. The vast majority of new
companies instead set out to capture a specified proportion of a market which already exists. The
market analysis section should state the magnitude and nature of the market which the new
enterprise will be serving. Factors to include in a market analysis are
 Total size
 Historical and projected growth rates
 Market distinguishing features
 Social and political considerations
 The source of the market analysis data

5. Production
This section should set out your basic production philosophy, addressing issues such as:
 Production equipment - in-house or contract
 Production facility requirements
 Sourcing of raw materials or components
 Quality controls, packaging and transportation
 Production budgets
 Contingency plans if production needs to be increased
The reader should be given some feel for how the overall production process will work, what
style of management system will be adopted, the level of resource and funding allocation needed
and the ability of the production plans to be adjusted to account for changing conditions

6. Marketing
Marketing includes all aspects of how your company plans to create customers. The types of
topics to cover in this section:

JBIMS MHRD 2019-2021

Advertising and promotional plans
 Unique features and benefits
 Credit approval process for new customers
 Anticipated competitive responses of competitors
 Marketing personnel who will be involved
 Marketing budgets
 Plans if business grows faster than expected.
Overall, the marketing section should set out the general corporate strategy from the perspective
of the connection between the company and the customer.

7. Organization and People

Selecting the right people for key roles in the new growth company cannot be overemphasized.
This is a key area which for many growth companies is based around four distinct layers of
human resources:
 The Board of Directors and advisers
 The company's general management
 Functional or technical specialists
 Other key individuals
The business plan should set out the technical and practical skills backgrounds of all these key
people in the new company. The generally accepted rule of thumb for building a growth
company is it is far better to raise the amount of money required to hire the people needed than
to try and improvise. Once the people are available, there must also be some type of management
and accountability structure. The business plan should clearly explain who is accountable to
whom, and how that management function will operate day-in and day-out. The existence and
development of a strong and viable corporate culture is always seen as an extremely strong
aspect of any business plan.

8. Funds Flow and Financial Projections

A new company must have sufficient capital reserves to allow it to continue operating until the
merit of the company's products or services become widely enough known in the marketplace to
generate earnings to continue operations. The exact amount of start-up capital requires varies
widely from company to company and from industry to industry
How much equity must be given to raise the necessary start-up funds will depend on factors such
as:
 The amount of capital required
 The amount required exceeding what the founders can provide.
 Whether the aspiring entrepreneur has or does not have growth-company ambitions, as in,
it is better to own a small piece of a big pie than vice versa.
 The recognition that the company is not being sold when the outside money is brought in.

JBIMS MHRD 2019-2021

 The Fifth Commandment: Hiring Smart
Employ key people with proven records of success at doing what needs to be
done in a manner consistent with the desired value system of the enterprise.

This commandment talks about the importance of hiring the right set of employees fit for the job.
Commandment One talked about the primary set of people- directors, founders, officers,
advisors, etc., while Commandment Five talks about expanding the stage in order to hire the
right set of people. There are two sides of the type of people who are going to be the part of the
organization – one side has to do with the technical and functional qualifications, while the other
has to do with what is called as building the enterprise by building people. Proper selection of
employees thus becomes indispensable. Some key pointers for making sure that the right pool of
talent is acquired are stated as follows:

 Tough Face-to-Face discussions: It is important to ask questions from a candidate on

what all he has done in the past 3-4 years to gauge his performance standards. It could be
anything related to his/her accomplishments, strengths, weaknesses, initiatives and the
like. It is also required to clarify discrepancies, if any, with the candidate’s profile or
background.

 Reference checks: Verify the highlights of the profile of the candidate. Thiscan be done
by contacting the references given by the candidate. This builds more credibility and
ensures that the right set of candidates are hired.In particular, it is better to put up extra
inputs on the candidate, which aren’t directly stated anywhere, like insights on qualitative
aspects like his/her behavior, conduct during stressful situations, etc.

JBIMS MHRD 2019-2021

 Scenario Questioning: In a second or third round of meeting the candidate, it is important
to ask what if questions and scenarios. More than the answer, it is the approach and
trajectory of approaching the answer that matters more. This is also an effective way of
studying the effectiveness and analytical capabilities of a person and shows the intellect
and thinking capabilities of the person. These could be anywhere from asking questions
related to costs being over budget or sudden unexpected increase in orders or approach to
an inventory control, depending upon the type of business.

 Multiple Interviews: An individual’s capabilities are judged even more effectively when
his performance is tested in the light of varied events and by multiple interviewers. This
also eliminates the component of bias, ensures a fair selection process and brings
objectivity in the process. Every hiring decision entails some risk and the worst case is to
get someone who is not fit for the job. Thus, a team with consistent values would ensure
that there is also consistency in the parameters on which the applicant would be judged.

JBIMS MHRD 2019-2021

 The Sixth Commandment: Setting Standards; Rewarding
Performance

Reward individual performance that exceeds agreed upon standards.

Performance above the perfunctory level is at the discretion of each employee. Most people
utilize their excess energy in out of the job activities. Those few employees who are passionate
enough to go the extra mile must be awarded and recognized proportionately for keeping them
motivated and in the same momentum. The manager must first ensure that there is understanding
on the basic minimumtargets to be achieved and should definitely make sure to provide for
incentives when employees put in extra efforts at the workplace.
Apart from the basic salary, people work for various reasons at workplace, including recognition,
self-development, the need to create a value. These reasons are well put by Maslow’s Hierarchy
of Needs. As s given level of need gets satisfied, the individual moves towards satisfying the
higher order level needs. The Hierarchy of Needs is as follows:

1. Physiological Needs (basic issues of survival such as salary and stable employment)

JBIMS MHRD 2019-2021

2. Security Needs (stable physical and emotional environment issues such as benefits, pension,
safe work environment, and fair work practices)

3. Belongingness Needs (social acceptance issues such as friendship or cooperation on the job)

4. Esteem Needs (positive self-image and respect and recognition issues such as job titles, nice
work spaces, and prestigious job assignments.)

5. Self-Actualization Needs (achievement issues such as workplace autonomy, challenging

work, and subject matter expert status on the job)

These needs however, may lead to a self-centred attitude and achievement of goals from
whatever sources that may seem convenient for achieveing the said need. These theories might
regard self as the most sacred object and leads to thoughts of “more of everything” and
“primacy of self”.

What is thus, important to understand is that the new entrepreneurial society is based on
pluralistic views and collaboration of globalized markets. It is based on enduring need for human
relationships, not in spite of the march towrds individual recognition, but in addition to it.

JBIMS MHRD 2019-2021

 The Seventh Commandment: Walk before you run!

Expand methodically from a profitable base towards a balanced

business

Positivism and growth are exciting propositions, but it is important to have a strong foundation
first. Directly jumping on accomplishing greater milestones without getting the basics strong can
be disastrous for the new business and might as well drain the entrepreneur emotionally and
mentally.
In order to be practical and realistic before making skyrocketing expectations, it is thus,
imperative to understand the metrics of the business first in terms of what to expect with respect
to the sales generated and costs occurred.
Costs can essentially be of two kinds:
(1) Variable Costs: Variable costs are costs that change as the quantity of the good or service
that a business produces changes, i.e. variable costs are the costs that varies with the level
of output.
(2) Fixed Costs: Fixed costs are those which do not vary with the level of output. These costs
are not dependent on the level of goods or services produced by the business. They tend
to be time-related, such as interest or rents paid per month.

The company finally starts to make profit when it has recovered not just the variable costs, but
also the fixed costs. The point at which the company has finally recovered the fixed cost is called
the break-even point. In simple words,is the point at which total cost and total revenue are equal,
i.e. “even”. There is no net loss or gain, and one has "broken even", though opportunity costs
have been paid and capital has received the risk-adjusted, expected return. For any new business,
the first challenge lies in attaining the level of output which yields the break-even point.

JBIMS MHRD 2019-2021

On excluding the variable costs from the total revenue earned, what we get is ‘Contribution’. The
total contribution margin generated by an entity represents the total earnings available to pay for
fixed expenses and to generate a profit. It is important because it shows how much money is
available to pay the fixed costs, that must be paid even when production or output is zero.

Profits don’t just happen as the business starts, the entrepreneur needs to make them happen. The
aim should be to reach the break-even level as soon as possible and then maximize on the
revenue.

JBIMS MHRD 2019-2021

 The Eighth Commandment: Go with the (Cash) Flow
Project, Monitor and Conserve cash and credit capability.

A company’s ability to continue effectively lies largely in its capability of earning revenue and
maintaining a good liquidity position, for it is imperative to be prepared for planned and
unplanned events which might require utilization of cash and cash equivalents. The author talks
about importance of maintaining enough cash reserves and states that this is the commandment
which is violated the most.

Even big Conglomerates like Proctor & Gamble and Orange Country, California got hit by cash
crunch when they got debt ridden as they got hooked on short-term debts. According to Henry
Kaufman, the chief economist at Salomon Brothers interest expense alone consumed 45% of
corporate net profit before taxes for companies which relied too much on debt.

Cash might be tightened or squeezed due to a myriad of reasons which are described as follows:

1. Increase in interest rate on borrowings: Regardless of size of the company, interest on

loans might drive out large cash reserves out of a business. Firms with overdrafts will
have higher costs because they must now pay more interest. Nearly every business has
outstanding loans, and when interest rates increase, those loans become more expensive.
These are long-term debts that are going to take years for you to pay off, so any increase
in the interest rate on those loans means the business is going to carry the debt longer and
pay more money. In addition, higher interest rates mean it will be more difficult to take
out new loans to help pay for unexpected expenses or to expandbusiness when necessary.
This can short-circuit the growth of the company for months or even years.

2. Piling up of inventory and no customer: This situation is when the stock piles up and is
unsold owing to no or negligible number of customers. In case of merchandise, the ability
of a business to effectively sell its products is measured by the inventory turnover ratio. A
company's inventory turnover ratio refers to how quickly goods enter and leave storage at
the business. Inventory turnover measures how fast a company sells inventory and how
analysts compare it to industry averages. A low turnover implies weak sales and possibly
excess inventory, also known as overstocking. It may indicate a problem with the goods
being offered for sale or be a result of too little marketing. This problem leads to a lot of
capital accumulated in the form of unsold inventory and doesn’t leave enough cash
equivalents with the business.

3. Bad debts/ accounts receivable: Many entrepreneurs start out being a manufacturer or
service provider but end up being a bank of sorts! This is to say that in the initial phase of

JBIMS MHRD 2019-2021

 the business, it is not advisable to give out services or goods on credits as the probability
of them turning bad or unpaid is relatively high. The author, thus, cautions the
entrepreneur of becoming a finance company unintentionally and beware of extending
credit for providing services/goods.

Growth company need more money than they can generate internally. The range of sources
as discussed by the author is as follows:

 Individual Investors (the public)

 Venture Capitalists (professional investors)
 Private investors (wealthy individuals)
 Foundations (money for special causes)
 Corporations (joint ventures & equity investments)
 Creditors (banks, individuals)
 Credit companies (accounts receivable financing)
 Suppliers (extended payment terms)
 Customers (payments made in advance)
 Employees (stock purchases, wage/salary concessions)

It is firstly important to understand how much money a business requires at various points of its
business plan. After that, it is important to keep the creditors aware of the business’ progress and
growth. Essentially, what an entrepreneur must do is to build credibility by building confidence.
It is easier to get loan when a business already has a good balance of cash maintained, as that has
the potential of enhancing the credit rating of the company, which is an essential parameter for
extending a loan to a borrower company.

JBIMS MHRD 2019-2021

 The Ninth Commandment: Health is Wealth
Maintain a detached point of view.

A growing business requires unyielding dedication that can consume the body, impair senses and
unwrap the mind. It is thus important to accept the failures and successes of a business with
equanimity.

Only a few rare ventures get away with success using shortcuts and without sweat equity, which
is the investment of many long days of toil and hardship. However, what is important is to be
objective and be separable from the business itself. The inability of an entrepreneur to step back
and put some distance between him and the business is a common problem.

The author mentions Larry E. Greiner’s study which explains the ‘Typical stages of Growth and
Crisis’. This model is appreciated on the grounds that it is useful for managers in piloting their
enterprises over time. The model is explained as follows.

1. Growth through Entrepreneurship/ The Founders Crisis: This is where a business comes
into existence. One person or a small group comes along to work together. But a single

JBIMS MHRD 2019-2021

 minded dedication of the early executives also leads to what is called the Founders crisis.
This is because the entrepreneur tries to do everything by himself or herself. He or she
won’t let go of some of the reins and tries to grasp everything which is why the control is
entirely with those one or two individuals.

2. Growth through Functional Teams & Delegation/ Autonomy Crisis: It takes the
broadening of management talent base and some effective staffing that leads to creation
of functional teams. Teams might include people from various departments like
marketing, operations, manufacturing, finance, etc. The crisis is however, of the
autonomy for the entrepreneur is compromised and as the founder of the startup he/she
might still struggle to let go of it.

3. Growth through Delegation/ Crisis of Centralization (Control): More formal structures

are formed and the single level of general management simply gets to a point where it
simply cannot manage all the operations and working singlehandedly. This leads to
atleast one additional layer of general management teams being created between various
levels and the company gets divided into profit center teams. This leads to more
homogenous issues being dealt by a particular kind of profit center team. The crisis
however comes from control, because various profit centers might work in different
directions and might be diverting from the actual organizational objective.

4. Growth through coordination/ Crisis of Red Tapism: Coordination is needed to exploit

competitive advantage and that comes in the form of information systems, reporting
mechanisms and planning schedules. This however comes with the crisis of red tapism
wherein excessive paperwork, hierarchy levels, matrix structures and administrative
levels are not very enduring.

5. Collaboration and Culture: Coordination among diverse activities and internalization of

values, checks and balances leads to the development of culture. The existence of a
culture implies that a group of people share a point of view about matters important to a
larger organization.

JBIMS MHRD 2019-2021

 The Tenth Commandment: Seeing Around Corner

Anticipate incessant change by periodically testing adopted business

plans for their consistency with the realities of the world marketplace

Living in isolation doesn’t work in a world that is ever-changing. Governments, customers,

competitors change increasingly, and it is important to take the dynamic aspects in mind rather
than staying with the past and refusing to change and update. An entrepreneur should
systematically tune what he/she is building according to time. Change is important in business as
it enables a company to meet the dynamic needs of its customers and create growth
opportunities. Change also allows a business to keep up with advancing technology and respond
to different economic conditions, such as strong or weak economic growth.

An entrepreneur should adjust his/her managing style to fit the changing needs of the enterprise.
The needs and requirements are independent of the managing styles mostly, thus it is the
responsibility of the business to adjust the managing styles as per what is expected out of a
business from its standard operating procedures.

The organization structure should be treated as a variable – dynamic and ever changing.
Structural rigidity should be combined with a sufficient scope of bringing internal and external
changes. There should be effective communication and delegation of responsibilities. A
company should analyze the skills and expertise it needs in the future and offer its employees
additional training to equip them with those skills. It is important for a company to encourage its
employees to explore new opportunities and bring new ideas to the company, as this increases
employee commitment. A company can identify new opportunities for growth by hiring
employees who have different perspectives that challenge current procedures at the company.

JBIMS MHRD 2019-2021

 Change challenges the status quo
 Change helps take advantage of technical advances
 Change presents teams with new opportunities
 Change ensures that one is ready for the new breed of customer
 Change can turn a crisis into an opportunity

JBIMS MHRD 2019-2021