Five elements to get right when growing a business
Do you run a business? Do you want to grow your business?
Managing a growing business is hard work. A growing business is under a certain amount of stress. The faster the growth, the higher the stress. This does not suit everyone.
If you want to tackle the challenge of growing your business, read on for five key areas you should consider on your growth journey.
1. Get your strategy and business model right
This is critical to ensuring you can beat the competition.
“You don’t have a real strategy if it doesn’t pass two tests: First, what your planning to do really matters to enough customers; and second, it differentiates you from your competitors.” – Gary Hamel
Your strategy and business model are closely intertwined.
Your business model is how you are going to create competitive advantage. Your business model is your vehicle to deliver your strategy. It is how you create value and transfer value to your customers and get paid. You need to keep revisiting your business model until you have clear advantage over your competitors and then continue to develop it to become world beating.
This takes time: Apple took 25 years to produce the iPod; Starbucks took 20 years to get more than 1,000 coffee shops.
“I’m always amazed how overnight successes take a helluva long time” – Steve Jobs
2. Overcome three key barriers to scaling up
The following are three very real barriers to any business looking to grow and scale consistently:
- Leadership: the inability to grow and develop enough leaders throughout the organisation who can effectively delegate and predict
- Scalable infrastructure: the lack of systems and structures to handle the complexities in communication and decisions that come with growth
- Marketing: the failure to scale-up an effective marketing function capable of attracting new customers, talent, advisors and other key relationships to the business.
“Scaling Up” – Verne Harnish
The Marketing function is a focus of many business owners; Leadership ability through the organisation and Scalable Infrastructure much less so. Devote enough time to all three of these barriers in your own business to ensure they don’t impact your business growth.
3. Grow where you are planted / stick to the knitting
In other words, stick to the businesses and markets that you know best. Stay within your circle of competence. Far too many business leaders jump outside their areas of knowledge/competence by
- winning a large contract in an area they have not undertaken before
- buying a business in an unrelated area and are not sure how to run it effectively
- entering a new territory or market without exploring the pitfalls first
These high risk approaches often result in disaster, significant destruction of value, drop in profits and cash, the leaders losing their jobs.
If you need to take risks:
- make sure the risks are understood and planned for
- the scale is small enough so you can learn without impacting your current business.
When you understand the market and are comfortable your business model is strong, then scale organically or through acquisition.
4. “Most companies die of indigestion not starvation”
Business fail because they run out of cash. More business run out of cash because they took on something too big to chew – e.g. the purchase of a business, a large contract, a new territory, scaling an untested business model – before they were ready to effectively manage this new part of the business in terms of:
- Sales & marketing
When you really aren’t ready, the wheel can come off quickly. Be patient (not easy I know) and bite off what you are fairly sure you can chew. If you don’t have a detailed plan of how you are going to manage it (people, projects, activities, resources), you probably can’t manage it effectively.
5. Keep enough cash
Growth requires cash. This is a simple business fact in nearly all companies.
Jim Collins in his best selling book “Great by Choice” found successful companies held three to 10 times more cash assets than the average for their industries and did so from the beginning.
Too many growth companies pay much more attention to revenue and profit than to cash generation. Profit is an accounting measure and you can’t pay staff and suppliers with it. “Cash is king” for good reason. Make sure you have enough of it and your business is generating cash.
In summary, five pointers to successfully growing your business:
- Get your strategy and business model right before scaling
- Invest to overcome the barriers of leadership, infrastructure and marketing scalability
- Stick to what you know. Experiment on a small scale, learn and then scale.
- Make sure that you execute, day in day out
- Always have enough cash – to cover the unexpected not just the expected.