Scaling Sanely: Navigating the Risks of Rapid Growth

Hi everyone,

Welcome back to another bite to chew on.

You know, there’s no doubt that everyone who gets into this game dreams of big growth. 

To be recognized as “the fastest growing brand in category X.” 

Every DTC operator has that same fantasy at some point - 

To share explosive month-over-month revenue charts. 

You know the ones - with positive triple digits and a line chart that only goes up and to the right.  

But the truth is - hyper-growth isn’t just super rare. 

It’s super risky too.

And - most importantly - you don’t have to hit high growth

To build a great brand or

A sustainable company.  

Today we’ll chat about all the risks hyper-growth companies face.

And what is actually important for long-term success. 

Why “big growth” anyways?

There are many reasons achieving big, topline revenue numbers is so seductive. 

First, it would seem to solve all of your problems. 

During those times when you can’t seem to get traction. 

Or sales have slumped. 

Or your ads aren’t landing. 

It’s natural to wish for the opposite. That revenue would just pour in. 

That every ad would resonate. 

And every customer would tell 10 friends to buy. 

And every retail partner would just keep sending bigger and bigger PO’s. 

But practically no business is effortless like this. 

Beneath the calm waters of your favourite, high-growth, super-brand

Is often turbulence,

struggles, 

and barely contained chaos. 

Because this game is very hard. No matter who you are.

Secondly, it’s natural to envy the mythical hyper-growth stories we read every day. 

This started in tech. 

With Silicon Valley’s “blitz scaling” and VC’s frantic search for the next unicorn.

But it moved into consumer during the height of cheap money and COVID-era lockdowns. 

Spurring DTC to new heights. 

But consumer isn’t tech. And the ZIRP + Pandemic era was a kind of fever dream, not reality. 

Rare, unnatural headwinds.

That time and those stories are NOT a realistic benchmark for success.  

Finally, it’s ego.

Let’s be honest. 

We all want to be the biggest, the best. 

We want our efforts to not just be rewarded but recognized. 

To see our brands celebrated by peers. And reported by the press. 

Everyone yearns to join True Classic or Hexclad in the headlines. 

But this can be the worst reason to want big topline numbers. 

Don’t get us wrong. Ambition is good. 

Hunger gets you to the next step when things are difficult. 

But ego and vanity can be dangerous. They can push you in the wrong direction. 

Sometimes what’s best for the business isn’t necessarily what is sexy or flattering. 

The paradox for founders and operators is:

Hunger + confidence + humility is the delicate personal balance you need to strike to win.

Tool of The Week

Alright, alright, alright - we’ve talked about the dangers of growing fast and everything that comes with it.

But… while we’re on this topic of growth, let’s also talk about a tool that can actually help you grow faster.

Whether we like it or not, Meta is the bread and butter for most DTC brands. But, scaling past $100k in monthly meta spend is TOUGH (heck, growing in general is, right?)

But - there’s a tool which we’ve found very helpful in successfully being able to scale our spend and finding better and more efficient audiences to show our ads to.

It’s called: Proxima AI.

Proxima uses some magical combination of AI and billions of data points to find audiences that somehow, someway perform better than Meta’s broad audiences.

And look - we were skeptical at first too, but since they offer a one-month free trial, we wanted to give it a shot like any other marketing experiment.

Here’s the result - 

Last month, we spent over $239,000 on Proxima’s audiences and achieved better efficiency than our broad campaigns.

So, did it work for us? Hell yeah!

Will it work for you? We can’t tell you that.

But… we strongly recommend you to give it a shot and run an A/B test with Proxima’s audiences.

Worst case - it’s just another failed A/B test that you’ll learn from.

Best case - you’ll find a scalable audience that can give you the ROAS you need to grow faster.

Check them out at Proxima.ai or reach out to Alex Song for more information.

It’s no joke - give it a shot…

High Growth means more complexity.

Let’s get back to those growth challenges we were talking about.... 

As founders of a high-growth company ourselves, we have seen it all first-hand at Obvi.

The truth is, as your revenue scales, the rest of your organization needs to as well. 

Not just in terms of volume, ie; doing more of what you’ve done before. 

But your company will need to change and evolve as you enter new phases of your business.

“What got you here won’t get you there”, as they say. 

High growth can expose you to significant risks at every point in your company.

So here are some questions you need to answer as your brand scales:

Supply chain ⛓️

• Are your suppliers able to scale with you?

• Is the rest of your supply chain (packaging, freight, pick & pack, shipping) robust enough?

• How will things like timelines, schedules, and inventory management need to change?

Let’s be blunt. Supply chain disruptions can sink you.  

A story - 

A founder in our network was seeing high growth heading into the start of 2020. 

New wholesale channels had come online at the end of 2019, on top of steady DTC expansion. 

But they started to noticed their supplier was beginning to buckle under their pace. 

Pushing back big shipments weeks, sometimes months. 

Missing deadlines. 

When the Pandemic hit in early 2020, their demand spiked, but their supply withered. 

By mid-2021, their first and only supplier went out of business. 

Their cash flow dried up because they had no inventory to sell. 

They spent two years sourcing new manufacturers while their back orders grew and grew.  

COVID represented a major opportunity for them. But it turned out to be a major existential threat instead. 

They survived but learned a valuable lesson. 

Their supply chain wasn’t ready to handle major growth.   

Is yours?   

Sales channel & product expansion:

• Do you have the capacity and expertise to adequately tackle this opportunity?

• Is this opportunity worth the investment of dollars, time, and distraction?

• Are you chasing “shiny new things” at the cost of your core business?

Growth can happen vertically, by just selling more and more of what you have. 

But it can also happen horizontally by adding new offerings, new sales and distribution channels, new markets and regions, etc.

Early-stage brands mostly scale vertically, at least to start. 

But eventually, you’re going to have to expand horizontally too.

Of course, that’s where the risks hide.

New sales channels come with their own, unique issues. 

Be it the challenges of big-box retail,

Or the intricacies of the Amazon marketplace. 

New product R&D can soak up time and money. And not every new product is guaranteed to be a winner. 

In the end, you need to determine if the additional effort of horizontal expansion is worth it,

Given your internal resources, competencies, and capacity. 

Sometimes focus is your most valuable commodity and the best strategy to pursue. 

Master a few key elements of your business first, then move to new opportunities.

Avoid chasing every shiny new thing and becoming stretched thin.

Finance 💵

• Q: Do you firmly understand your fixed and variable costs?

• Q: Do you have the cash management, forecasting, and financing in place to support your growth plans?

The bigger you get, the bigger your related costs.

It’s a fact of life. 

• 💸 More staff

• 💸 More vendors

• 💸 Bigger POs

You need to have your numbers dialed in if you want to grow fast. 

You also need the kind of cash flow and fundaraising that can support things like an expanding Opex or big capital investments that often come with high growth. 

Like we discussed recently<link to newsletter>, you need to manage both profit and cash to survive in DTC these days. 

Doubly so if you are trying to grow 100%+. 

Beware the mythical hyper-growth beast

All of this is to say -

The risk of super growth is getting too big, too soon…

And then collapsing under your own weight. 

If your company has any major (or even minor) faultlines 

Big growth can expose them - and cause them to rupture. 

Do you remember some of the headline-grabbing consumer companies from just a few years ago 

• 📉 Oatly?

• 📉 Peloton?

• 📉 Away?

Their growth spikes were transient. 

IPO’s built more on topline revenue hype than a profitable reality. 

The ZIRP era taught us you can’t fix everything with lots of revenue

Or with plentiful financing, 

Just by throwing money at it. 

That’s why it pays to crawl→walk→run in business. 

To learn key lessons. Face some hard times. 

Build fundamentals.  

That is also why humility is so essential. 

Being able to take your lumps and learn from them. 

To understand that slumps, slow periods, and mistakes, are all opportunities to improve.

And not necessarily indictments of you as an operator. Or a person. 

Confidence. Not arrogance. 

Resilience. Not vanity. 

Don’t chase headlines and accolades. They should not be your purpose.

And they will not sustain you when things get tough. 

Sum it up

Look, this isn’t us saying that growth is bad. You need to grow to survive. 

And we’re not saying it’s impossible to be high growth and succeed. It can certainly happen.

What’s important is finding a growth rate that works for you and your business. 

Right-sized growth is the ideal. 

Build the fundamentals in your company first. 

➕ Iterate. 

✅ Improve. 

💪 Evolve.

And do it at a pace that makes sense for you.

Even if takes a little longer.

Before you go…

Don’t forget to join me (Ron) and Romain Lapeyre (co-founder and CEO of Gorgias) on Thursday, July 11 for a free webinar we’re calling Automate your way to 8-figures.    

Want to learn how to leverage AI to scale your CX? Looking for actionable tactics to not only improve efficiency, but create better experiences?

Then you won’t want to miss this one. RSVP here. 

All the best, 

Ron and Ash