Cash-flow crunches. Staffing snafus. Plain old burnout. For new entrepreneurs, the common challenges of the startup phase can be overwhelming — so much so that most firms go out of business before their 10th birthday. This year's PROFIT HOT 50 leaders encountered them all — managing not only to survive, but thrive. Here are five key lessons in rapid growth that the HOT 50 learned the hard way.

Get enough capital. Then get some more

Jason Shron figured he would need to borrow $75,000 from a silent partner to launch the model-train manufacturing company of his dreams in November 2004. But like so many entrepreneurs, the CEO of Rapido Trains Inc. (No. 4 on this year's HOT 50) underestimated the time needed to generate sufficient cash flow. When his detailed model trains arrived almost a year late from a manufacturer in China, he was forced to go back to his partner for an additional $200,000 to cover the costs. By that point, the partner had run into a financing crunch of his own, so he called in the loan. Shron didn't want to lose the partner — he was experienced and knew the industry — so Shron had to find a way to pay up.

Shron took out a factor loan, whereby a specialized financial-services firm purchases accounts receivable at variable interest rates — 25%, in Shron's case. By factoring, he was able to hand his partner a cheque for $250,000 within 30 days. The loan saved the firm and Shron's partnership.

Douglas Grosfield faced his own capital crunch when his Kitchener, Ont.-based IT-support firm grew rapidly during its first two years in operation. Xylotek Solutions Inc. (No. 40) landed a mega-order for hardware worth nearly $500,000, but didn't have enough cash to cover product and overhead costs. Grosfield and his partners had overlooked that crucial law of credit: you have to get it before you need it. Being swamped with orders was a luxury, "but we had no idea how we would swing it all," says Grosfield. After weeks involving trips to banks and suppliers asking for time and money, the firm secured financing to cover the cost of the orders.

In retrospect, Shron advises other entrepreneurs to presume they'll need extra funds in the startup phase. "You have to expect things will go wrong, and build time and money in for that."

Systemize HR sooner, not later

By the time Sean Costello founded IronGate Server Management and Consulting (No. 31), he'd already witnessed the havoc that an ineffective HR structure can wreak on a young company. Three years prior, Costello had sold his first computer-consulting company to another firm and, as part of the deal, agreed to stay on to help oversee the transition. Costello says he made the mistake of assigning employee responsibilities too casually. "I would invite people to bridge this short-term need to fill that gap, to help out over here as well," he remembers. One unintended result: once-focused, disciplined employees grew distracted and disenchanted with their work.

When his next firm, Ottawa-based IronGate, started experiencing rapid growth, Costello was determined to avoid the same pitfall. From the beginning, he drafted job descriptions for all his hires, updating them during quarterly employee performance reviews. He also analyzed which new opportunities were coming and the associated jobs they'd need to fill, and carefully probed candidates about their experience and career aspirations during job interviews.

Within IronGate's first year, for instance, Costello interviewed a potential account manager who had designs on one day becoming a controller. "We didn't need a controller at that point," Costello explains, "but we'd identified that we'd need one within the year." So IronGate hired the account manager and paid for the training that would allow him to assume controller duties — which he did 12 months after joining the firm. Bonus? The controller still works on key client accounts during swells in IronGate's business.

Mind your metrics

Shortly after launching Optamedia Inc. (No. 37), agency principal Chris Bolivar landed the first of what would be many major advertising contracts from energy-sector clients. But within a few months, Bolivar was surprised to learn that net income for his Edmonton-based advertising agency was off target by as much as 10%.

"I'd look at projects and wonder why they were taking so long," he says. Neither Bolivar nor his staff were keeping track of time spent on client work, which meant the firm was chronically eating into profits by underestimating how long it took to complete projects.