For the principals at Matchstick, the 49th parallel had for years seemed more like an insurmountable wall than a mere line on a map. The boutique Toronto marketing agency specializing in generating word-of-mouth buzz for consumer products had shied away from trying to scale that obstacle until 2006, when partner Patrick Thoburn got some sage advice about U.S. clients from a business acquaintance: "They do not care where you're from. They just want the best company for the job."
Thoburn and his partner were already working with the Canadian arms of Chrysler, Starbucks and other U.S. giants. Emboldened, a Matchstick team embarked on a series of dog-and-pony shows last year, pitching their services to a range of American companies, starting with Chrysler's head office. Almost overnight, the 15-person firm broke out of its domestic shackles. Today, a quarter of its revenues come from U.S. clients, and Matchstick has hired a sales executive specifically to service those accounts. "We think bigger," says Thoburn. "We think North America-wide."
Such breakthrough moments can rapidly transform small, entrepreneurial businesses, catapulting them to new levels of sales, visibility and size. The triggers for this high-velocity growth can often be traced to a clear advance, such as winning a large account, embarking on an international expansion or gaining a high-profile endorsement. In other cases, breakthroughs occur not by design but through a happy confluence of market conditions. And, sometimes, notes University of Western Ontario management professor Stewart Thornhill, the tipping point only becomes apparent in hindsight—as when a small project or sale grows to become a major account.
Entrepreneurs need to prepare for such changes ahead of time, so they can take advantage of the opportunities while bracing their operations for the sudden expansion if and when it comes. Because once those orders start pouring in, a small business has to grow up quickly. "The smart people are the ones who plan for a breakthrough right from the get-go," says Rebecca Reuber, professor of strategic management at the University of Toronto's Rotman School of Management. "Rapid growth is really hard because it requires tons of cash. A lot of firms founder during this process."
Herewith, five destiny-changing events and how to safely navigate them.
Landing a major customer
Small-business consultant and recruiter Barbara Morris, president of Elevate Organizational Consulting, vividly recalls how her fledgling Toronto consulting practice took off when she won a gig with an ad agency that itself was experiencing rapid growth. Her firm had been retained to do recruiting for the agency, so she had to quickly hire half a dozen new employees for her own company in order to deal with the additional work from what had suddenly become her largest client. "The challenge was finding good people in a short period," she says.
When a big new client comes on board, the staffing issue is usually soon eclipsed by more demanding problems: how to service existing, smaller accounts, and how to deal with new business. In fact, when a small firm acquires one or two customers that dwarf the others and come to represent a lion's share of revenues, tough decisions need to be made. Morris, for one, stopped taking on new clients for several months while she geared up her firm for the ad agency contract.
Ian Gordon, a principal at Convergence Management Consultants in Toronto, says small businesses facing this dynamic should not even try to treat all their customers equally, even though he admits this may sound like heresy. "Some clients are just vastly more important than others," he says. He cites the example of one printing-sector company that landed a large and fast-growing customer. The printer opted to cultivate the relationship, offering this one customer a range of new services that produced a tenfold increase in revenues, says Gordon. "They treated that one important account as a market."
But many companies are caught off-guard when a big new deal makes their business suddenly explode. Accountant Jeff Kulbak sees it all the time with his TV and film production clients: A company with one or two series scores an international rights contract and suddenly finds itself with several programs in the works as its reputation spreads virally among global distributors. An associate with Daurio & Franklin LLP, Kulbak has worked with an East Coast animation company that saw its production volume triple in less than two years as U.S. and then Canadian broadcasters snapped up its kids' programming. From the outside, such stories look great. But these firms, says Kulbak, tend to be utterly unprepared for the financial implications. "They haven't done cash flow projections, they haven't thought about financing the new projects. And they're not understanding receivables or thinking about the tax consequences."
