In the throes of rapid growth, it isn’t always easy to see how the wrong choice of a labor model can put a young business at risk. Startups sometimes take an old-school approach to building the back-office team themselves, resulting in an inflexible and sometimes inadequately skilled staff that could limit the new business’ growth.
On the other end of the spectrum, it may be tempting for the emerging company to outsource finance and accounting wholesale, or to hire just one or two employees to address immediate accounting needs with off-the-shelf software. Neither approach carries immediate risk, but a growing business will soon need a more carefully considered strategy and infrastructure to guide future development of the finance function.
Strange as it may seem, the best approach to meet a startup’s dynamic resource needs originates with the decades-old Shamrock Organization model. Charles Handy proposed the notion of a blended team in 1989 and this business model is now mainstream with most companies. The leaves of the shamrock represent three categories of staff:
- The first leaf represents the professional core: full-time employees whose skills are critical to setting and implementing the business’ strategy.
- The second leaf represents the contractual fringe: engaged for as long as their services are needed and compensated for their results.
- The last leaf represents the flexible workforce: brought in on an interim basis to address peaks in staffing needs.
Like a growing shamrock, all three leaves should function together as a well-organized whole. The resulting mix of talent supplies agility and flexibility to address the various demands that arise in new enterprises.
Startups and other emerging businesses need to build market demand quickly and exceed customer expectations to drive revenue. With their primary focus on customers and sales, early-stage companies often find themselves in no position to focus on back-office functions. Even so, the events that can elevate or dash the fortunes of emerging companies come quickly and unpredictably. That’s when new enterprises are likely to experience resource challenges and skill shortfalls in the back office. Many business events call for specific finance and accounting skills or rapid responses to business events:
- Soon enough, a growing business will require a more sophisticated financial system. They’ll need access to finance, accounting and information technology professionals who have backgrounds in enterprise resource planning (ERP) systems to ensure a well-executed implementation.
- An expansion into new countries, states or even local jurisdictions results in additional finance, accounting and tax-related skill requirements to remain in compliance with local regulations.
- A strategy to go public calls for specific skills to implement management and financial controls and prepare for an IPO; getting it wrong can result in a lower valuation, from which recovery can prove challenging.
Even routine processing of receivables and payables is fundamental to overall success of the new enterprise. Failing to perform well in these ongoing tasks can limit the organization’s access to credit as well as create cash constraints. Peaks and valleys in the volume of these transactions can be addressed via a well-vetted and well-managed pool of blended accounting resources.
With an accelerating pace in transaction volume, the first impulse might be to hire additional accountants and clerks just to keep up. Hiring reactively is risky at any time, but especially when it is done before a business can understand its own long-term needs. On the other hand, insufficient or inappropriate staffing can disrupt operations and result in inadequate or poorly implemented processes and systems that limit growth. It might be wiser to take the longer view and consider a blended-team approach to accommodating future finance and accounting needs.
By providing a well-organized blend of employees, interim professionals and external experts, the shamrock model provides the flexibility that an early-stage business needs. With a flexible and agile team in place, the finance and accounting function can not only support but at times accelerate the growth of the enterprise. Ideally, the organization would identify a single partner who can bring in accounting managers with specific ERP skills, or directors with revenue-recognition expertise, as easily as they could supply additional payroll clerks. Over the course of a long relationship, a trusted partner like this will come to know the company’s strategies, risks and opportunities nearly as well as its own leaders do.
Emerging companies are known for demonstrating flexibility and agility in bringing disruptive new products and services to market. These companies can apply that same innovative perspective to the back office and secure a flexible and agile team that fully supports their business vision, come what may. By devising a strategy to address their changeable finance and accounting needs, emerging companies avoid the risks associated with inflexible staffing models of the past. Leaders who recognize the benefits of the shamrock model can avail themselves of whatever dynamic business conditions demand — on demand.
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