Why Startup Operating Systems Crumble Under Pressure

When rapid growth takes place in a young startup, the pressure is on getting business and ramping up. During this critical stage, the weakest link is generally the systems that have been put in place to manage growth.

Most promoters and managers under pressure for growth tend to cut corners and take shortcuts assuming that once the business starts to roll in, the systems will take care of themselves. Weak systems always have long-term implications on the organisation but in the short-term, the concerned manager is able to “show” that he has met his short-term and immediate targets.

In the early years after I founded Guardian, I was faced with many such issues as we grew quickly. Some of these were:

• Operations: With so much pressure to open stores and lack of trained staff, our operations leadership was constrained to move store staff from one store to another. This led to a significant increase in pilferage of stocks since store staff realised very quickly that no one was watching. Stocks would disappear and neither store management nor operations leadership would be willing to take responsibility.

• Projects: Though the company had a standard store-opening checklist which outlined every single step that had to be completed before a store was opened, in the hurry to open the store, the checklists were ignored. Non-completion of the store-opening checklist as a result of sub-optimal opening was another casualty.

• Contractors: Since the contractors who were building the stores were under pressure, they started using substandard material and this resulted in entire shelves coming off the walls where they were grouted after the store had opened, resulting in a loss of stocks. If standard operating procedures that were well-documented were followed, the contractors would have been managed better.

• People: Our need for people was large since 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 computer 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 in lost sales and lost cash because if a manual bill book disappears, there is no way to track what has happened to the stock till it 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 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 systems been implemented correctly.

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

[Ashutosh is the founder Chairman of Guardian Pharmacies and the author of the best-selling books, Reboot. Reinvent. Rewire: Managing Retirement in the 21st Century; The Corner Office; An Eye for an Eye and The Buck Stops Here – Learnings of a #Startup Entrepreneur.]