The ‘Efficiency Paradox’ Holding Back High-Growth Companies (and How to Break It)

Rapid growth is the goal for just about every entrepreneur, but seeing your revenue go up is only half of the picture. While it’s essential that you keep your finances healthy, many businesses struggle during this phase because of what is known as the “efficiency paradox.”

In the efficiency paradox, the business has existing practices or people in place that are allowing it to maintain its current level of income at an affordable rate. However, while this is financially efficient, it often requires unsustainable levels of work from existing team members, greatly increasing the risk of manual error, burnout and other problems that will negatively affect your long-term bottom line.

Here’s a closer look at what you need to do to keep the efficiency paradox from hurting your own business.

Cost efficiency comes at a cost

As your business grows, so does the workload. If you sell physical products, a higher number of orders means more hours will be required to fulfill those orders. Whether the work involves physically packing an order and putting it in the mail or managing the electronic back-end associated with each order, high-growth companies often find that the increased workload becomes too much for their existing team to handle.

It can be tempting to look at this as part of the startup process. Scale operations now, expand later. We’ve all heard entrepreneurs bragging about working 60 to 80 hours a week (or even more) to build their business. But this isn’t sustainable or healthy. Newsweek reports that 72% of U.S. employees deal with moderate to high burnout at work, with heavy workloads cited as the top reason behind their stress.

Heavy workloads and long hours aren’t good for anyone, no matter how efficient it’s keeping your business going at the moment. Burnout has been linked to impaired memory, emotional regulation, executive function and physical energy. It leads to more error-prone, lower-quality work, while also increasing turnover rates.

These issues can quickly compound for an organization targeting financial efficiency above all else. Gallup reports that 52% of U.S. employees are watching for or actively seeking a new job, an indicator of high levels of dissatisfaction across the board. Unsurprisingly, this can also lead to high rates of voluntary turnover, which can quickly eat away at financial growth.

Overcoming the efficiency paradox

Left unchecked, the efficiency paradox can be devastating for entrepreneurs. You’re not going to maintain high levels of growth if you can’t keep your existing team together. As their working abilities slip or they leave because they are overwhelmed by the workload, the quality of what you have to offer your clients will decline, too. Bad customer experiences will undermine the growth you’ve achieved up to this point.

Fortunately, overcoming the efficiency paradox isn’t a big mystery. In my own experience, I’ve found it generally comes down to making investments in two key areas: the right tech and the right hires.

From a cost efficiency perspective, tech is likely going to be the preferred option for many entrepreneurs, especially with the wave of AI tools designed to automate repetitive tasks and improve efficiency. The more of the manual, repetitive work you can offload onto AI, the more time your current team has for higher-level tasks. This can also reduce other operating expenses. 

For example, studies on AI use in healthcare have found it can help reduce costs associated with patient diagnostics by as much as 52%. A report from Zentist, an AI-powered revenue cycle management platform for dental practices, reveals that 58% of dental RCMs have adopted or are planning to adopt AI, with top focuses being on high-volume administrative tasks such as verifying insurance eligibility (67%), handling patient communication (57%), and posting payments (43%).

However, you need to make the right tech investments. If you don’t have standardized workflows for integrating new AI tools, you might end up creating more friction and duplicate work for your team. You need to have the right systems and data in place so you can scale order and efficiency instead of broken processes.

Making new hires can be less cost-efficient, but it doesn’t have to be. I’ve often worked with freelancers and part-time employees to fill needs as my business has gone through scaling. This allows for greater flexibility in hiring, especially when the growing workload doesn’t yet require an additional full-time employee. You can hire additional freelancers as needed, or transfer someone into a full-time role when the need arises. 

While extra hires lower your short-term cost efficiency, they can increase productivity by keeping your existing team’s workload more manageable. As with tech tools, the right hires can also give your current team more time to focus on higher-level tasks that further drive profitability.

Finding the right balance

Overcoming the efficiency paradox can be a challenge, in large part because it isn’t an exact science. What worked for my business isn’t necessarily what’s going to work for yours. You might need different tools or processes to streamline your workflows. You might need to hire more people. 

What’s most important is that you always consider how your current high rate of growth is impacting the people who matter most: your existing team. They’re the ones who helped you get to your current level, and you need to make sure you still have an environment where they can thrive.

By finding the right balance between cost efficiency and operational needs, you’ll set your team — and your business as a whole — up for long-term success.

Rapid growth is the goal for just about every entrepreneur, but seeing your revenue go up is only half of the picture. While it’s essential that you keep your finances healthy, many businesses struggle during this phase because of what is known as the “efficiency paradox.”

In the efficiency paradox, the business has existing practices or people in place that are allowing it to maintain its current level of income at an affordable rate. However, while this is financially efficient, it often requires unsustainable levels of work from existing team members, greatly increasing the risk of manual error, burnout and other problems that will negatively affect your long-term bottom line.

Here’s a closer look at what you need to do to keep the efficiency paradox from hurting your own business.