Goldilocks grpwth: companies face challenges on many fronts as they move into a new phase.

Everything was going well for Thinkwell Design & Production, a developer of theme park attractions. It had raised adequate capital and garnered good notices for its tour ride of dinosaurs brought back to life--so much so that a major Japanese theme park cut a quick deal with the Burbank-based business.

It was a quick comeback for a company that happened to open its doors a day before the Sept. 11, 2001 terrorist attacks, which sent the global theme park industry into the doldrums and left the company stuck in neutral. Then, as things slowly rebounded, Thinkwell's founding partners found themselves with too much business coming in too quickly.

"It was a challenge to balance everything," said Francois Bergeron, a principal and chief financial officer. "It was do or die."

In a perfect business world, there is Goldilocks growth--not too hot and not too cold. But controlled growth is the toughest kind of growth there is because it requires discipline, planning and more than a little luck. It's especially hard for a startup or even a business in adolescence, when growth often comes in fits and starts.

"It's a fairy tale" said David Choi, a professor of entrepreneurship at Loyola Marymount University, who notes that more often than not, businesses don't have much choice. "Things are not always going to run smoothly and you're always going to be making adjustments because everything around you is fluid."

To handle its increased theme park workload, Thinkwell expanded its staff threefold and had to take out a small business loan for larger facilities. The expansion, though risky and challenging, has paid off, with revenues expected to top $6 million this year, a 100 percent increase from two years ago. "We're OK now," Bergeron said, "but there's a possibility we will have to go back for a second round of funding."

Technology saves the day

For EDI Express. an 1l-year-old Gardena-based tracking company, expansion has come in waves.

Three years ago, it added routes between New Jersey and Florida that required additional sales staff. The company also promoted several employees from within, creating staff vacancies at lower levels.

"It has been a challenge," said Jerry Kelleher, an EDI Express senior vice president. "With our growth, we've taken so many people from entry-level positions and moved them to other places. Some departments have had to struggle with the good ones being robbed from within the company."

EDI was able to save some expansion costs by using in-house software. "The main keys for us have been getting technology and computers to work more efficiently for us," he said.

Staffing is commonly one of the biggest stumbling blocks for a rapidly growing business. Sometimes entrepreneurs can't let go and allow others to manage. Other times, companies can get dragged under by hiring too many people.

"An early stage entrepreneur may very well be the police chief, the fire chief and the mayor," said Kris Kaufmann, a partner at Deloitte & Touche LLP. "As the organization grows, they have to let go of some of those responsibilities. The trick is doing that before it becomes a disaster."

Consultants advise hiring well-experienced managers with a track record at running growing businesses. "It sounds like a no-brainer," said Choi, "but it's really not that simple."

Finding and hiring qualified new employees takes time from day-to-day operations. When staffing additions are made. the company can change significantly. Employees who were there from the start, working long .hours and often becoming loyal friends, are suddenly shoulder-to-shoulder with professional managers. That can lead to a culture clash.

New employees also come with bad habits or need to be retrained. Irv Grousbeck. professor of management and director of the Stanford Graduate School of Business Center for Entrepreneurial Studies, warns companies that even if they are growing rapidly and pressed for time they should not skimp on training. "It takes years to build your reputation," he said, "but it takes only minutes to lose."

Those were some of the problems at EDI, which has added 20 employees since 2004. Kelleber said finding the fight people with the right attitude has been difficult--even when it comes to something as basic as arriving to work on time. "Their absence puts pressure on other employees," he said. "An empty desk is not efficient and that's been a real problem for us."

Money at the right time

But before a fast-growth company can hire more staff, equipment and resources, it needs more funding. That Catch-22 plagues nearly every successful company. "Very few companies are able to do it internally through self-sustaining revenues," said Donald Johnson, chief executive of American Business Bank.

Companies find the money to grow in two ways--through new equity or by securing financing. The choice of route depends on the business, according to Mike Dokmanovich, an executive vice president at Comerica Bank.

In the equity market, companies with an unusual product or service can typically recruit investment from venture capitalists, private equity firms or wealthy individuals. But if the company provides a more traditional product in a competitive field, where it's differentiated by price and service, then financing is the more common route. "If you're growing rapidly because you have a big order, there are not investors for that," Dokmanovich said.

The best time to raise money, Choi said, is when a business needs it the least. By the time orders begin rushing in, it's often too late to meet increased demand.

"The worst time to raise capital is when you need it because nobody will give you money," he said. "If you say to investors 'I need your money', they all run away. But if you go to them and say 'I don't really need you but if you invest I could grow this much faster,' then investors like you."

Bankers present their own difficulties because they will typically lend up to three times a company's net worth and that may not be enough to fund expansion. Companies can also borrow against accounts receivable, though interest rates on those loans are typically very high.

Johnston said it's not uncommon for a business owner to come into his office with a multi-million dollar contract that it can't fulfill without money. In that situation, banks are sometimes of little help. "It's almost impossible to take because it's like you're financing an entirely new business," Johnston said. "That's tough for anyone."

So far, it's a dilemma that Quintessence Photonics Corp., a Sylmar manufacturer of laser components, has been able to avoid.

Customers of the four-year-old company, which has developed a small, yet powerful, laser at a fraction of the typical cost, send auditors to determine the size of orders that can be placed. "We won't get an order for 1 million units to be delivered in a month because our customers, when looking at our staff and facilities, realize that we can't wrap up an order that quickly," said George M. Lintz, chief operating officer and chief financial officer.

While still a small company, Quintessence Photonics expects $1.5 million in revenues by the end of this year, 15 times more than it made in 2002.

As production ramps up, the company has drummed up new investors and increased its staff threefold, to 24 employees. "Growing has certainly had its challenges," Lintz said. "There was a rough transition from startup company to a more mature company."

'Accurate road map'

Grousbeck said it's essential for a business, especially in the early growth stage, to make rolling forecasts. They should be made quarterly or at least every six months and reflect input from all aspects of the company, not just the sales department.

The forecast should also take into account sales trends, economic indicators for the industry, and an assessment of the company's own production abilities. "It doesn't do any good to put it in a desk drawer and ignore it for a year," Grousbeck said.

But while forecasts are important, a jump in business can make them moot. "There is some guessing," Kauffmann said. "It's where everything becomes more of an art than a science. As a business, you're going to have to take some risks."

To determine growth essential to setting spending and hiring ranges, Lintz said Quintessence Photonics relies heavily on information from the sales and marketing staff. The company looks at how many orders have been placed and how many new customers have expressed interest. Lintz said that helps give the company a sense of its current and future market demand.

Judging from that data, Lintz said the company is predicting a 100 percent growth in revenues for each of the next three years. Then revenues will gradually fall into the 20 percent a year range. "We are still in a high growth mode," he said.