Why Start-up’s Operating Systems Crumble Under Pressure

When rapid growth takes place in a start-up, the weakest link is generally the systems that have been put in place to manage the growth. Most managers, under pressure for growth, tend to cut corners and take shortcuts. This always has long-term implications but in the short term, the concerned manager is able to ‘show’ that he has met his short-term and immediate targets.

I was faced with many such issues as we grew quickly and some of these were:

• Operations: With so much pressure to open new stores and with a distinct lack of trained staff, our operations leadership was forced to move staff members from one store to another. This led to a significant increase in pilferage of stocks since the store staff realised very quickly that no one was watching. Stocks would disappear and neither the store management nor the operations leadership would be willing to take responsibility.
• Projects: Although the company had a standard store-opening checklist outlining every step that must be completed before opening a store, in the haste to open a store, the check list was ignored. Non-completion of the store-opening checklist resulted into sub-optimal opening and that was another casualty.
• Contractors: Since the contractors who were building the stores were under pressure, they started using substandard material and this resulted into entire shelves coming off the walls where they were grouted after the store had opened. This also meant loss of stocks. If the standard operating procedures that were well-documented were followed, the contractors could have been managed better.
• People: Our need for people was huge as we were opening more than five stores a month. We had walk-in interviews going on in our head office and our process of putting every new entrant through one week of training was a failure. Instead of training people, we started hiring and asking them to report at a store the following morning. Our customer service suffered and we started to get negative customer feedback.
• Technology: While we had a robust system to manage our stores, we realised that some of our hardware had started giving trouble and therefore, computerised bills could not be issued. Some stores started to use manual bill books and these manual bills were not regularised on a daily basis. This resulted into lost sales and lost cash because if a manual bill book disappears, there is no way to track what has happened to the stocks until it is physically counted.
• Cash: Reconciliation of cash collections on a daily basis, which is sacrosanct for any retail company, was stopped because it was seen as too cumbersome. When this was brought to light by the auditors, the finance department of the company had to go through very intensive work for over one month to get this reconciliation done prior to our audit.
• Stocks: While my colleagues in the loss prevention department were mandated to conduct stock checks every quarter in every store, this schedule fell by the wayside and physical stock checks were not carried out as per the agreed procedure. When we did conduct the stock-taking exercise, we found large quantities of stocks were missing. The staff members who should have been held responsible for these stocks at the stores had resigned and gone. The company, once again, had to absorb a loss that it should not have borne, had the systems been implemented correctly.

It is quite clear that unless systems are followed by a start-up from the very beginning, losses will mount from all sides before the promoter of the company can get his act together.

About the author: Ashutosh Garg is the chairman of Guardian Pharmacies and the author of the bestselling books, The Corner Office and The Buck Stops Here. Twitter: @gargashutosh