More, Please! Part Two of a Series

Financing growth is no good unless a company also manages that growth. Although there is no secret formula for effective growth management, the success of most growth efforts hinges on finance’s ability to structure a long-term plan, track key measures and provide advice to other managers.

Although it is difficult to view growth as anything but good for a company’s future, uncontrolled or unmanaged growth can be devastating to its future. There is no one-size-fits-all strategy for managing growth. Creating an effective plan depends on a host of factors, including many that rely on each company’s situation. Finance executives play a key role in managing their companies’ growth — from raising capital to fuel expansion to reining in overly ambitious plans that could cause the company to overheat. Finance executives need to know when to do both, while also supporting the type of growth that is in the company’s long-term best interests.

For The Boston Beer Co., managing growth occurred with a light hand. And although this approach ultimately served the company well, there were some glitches along the way. For 12 years, The Boston Beer Co., which produces Samuel Adams beer, grew 30 percent to 60 percent per year by focusing almost exclusively on increasing the top line. In fact, before the company hired its first CFO in the late 1980s, the company was so focused on increasing market share that it had few financial controls and little in the way of a financial infrastructure. Such a growth-management approach has its drawbacks, of course, as The Boston Beer Co. learned. Before the CFO arrived, cash flow difficulties caused by problems with the company’s accounts receivable and overall accounting systems forced it to tap into a $4 million pool of unused venture capital funding until it could straighten out its finances. Without that pool of funds, this "might have caused disruption in operations as we spent time sorting out financial problems," said Jim Koch, the company’s president and brewmaster.

Enter the new CFO, who joined the company in the late 1980s and spent the early part of his tenure sorting out the accounting crisis while also building an organizational infrastructure, not just in accounting and finance but in legal and human resources. At the time, "this was counterculture, but he was smart enough to get me to buy in to the need for good financial controls," which helped convince others in the company to cooperate, said Koch. "People didn’t even have budgets and didn’t understand the need for them. But they very quickly saw that this would help them get their lives under control."

Aside from the financial structure developed by the CFO, the company continued to manage its growth with a light hand. In fact, it was not until top-line growth slowed in 1998 and 1999, that the company addressed some important financial issues. By examining its entire cost structure and eliminating waste and inefficiencies, despite slow growth the company increased earnings per share by 50 percent and increased gross margins by five to seven percentage points.

"Before then we were growing too fast to do it," said Koch. He pointed out that putting the company’s energy toward eliminating costs during times of tremendous growth was like "trying to change the tires on a moving bus; it’s better to wait until you get to the destination." The company recognized that when the bus is moving, the growth is key, even if $1 million gets wasted in the process. "When your mission is growth, you’re willing to tolerate a lot of waste," said Koch. "The important thing is to get a critical mass of market share and then go back to developing financial controls."