Every year between 2001 and 2011, around 44,000 new Kiwi businesses were born. A few have grown into large, internationally recognised operations, some have grown to middling companies and then gone no further, and many have disappeared without a trace.
The differences between those that grow profitably and sustainably and those that disappear without a trace are usually clear. What may not be clear are the differences between the runaway success stories and those that get stuck.
It’s not that the stuck businesses don’t want to grow – growth may be their goal, but it’s not happening. Why? Part of the answer lies in their goal. Expansion for expansion’s sake is not sustainable. Deciding you want to grow by 14 or 20% a year means you’re chasing numbers, instead of chasing your core purpose. And if you’re not focusing on your core purpose, you will lose your way.
If a company grows at 15%pa, it will double in size every five years. A $10m company that grows at 25%pa for 12 years will have turnover of $144m. That’s a massively different company. To survive it needs to have a clear focus on what it’s doing, why – and how.
In growing your business you must get four decisions right or you risk leaving significant revenues, profits, and time on the table – or even getting stuck.
Everything rests on your people. If you don’t have the right people, your business will be consumed by personnel issues, making it difficult to focus on anything else.
Your people may be right for your company now – but will they be right for a much bigger company in two, three or five years?
Can these people operate at the level required? If not, how are you going to change this? You may need specialist skills you haven’t needed until now – how are you going to get them? Are you going to hire staff or outsource?
Do your people align with your core ideology? Does the structure around them support them to do their best? Get your people right, and then you can focus on the next three decisions.
When revenue is not growing as you would like, or is slowing, it is time to re-address your strategy.
What are you selling, who are you selling it to, and where are you selling it? What is your core ideology? Why do you do what you do?
What is your 10- to 20-year Big Hairy Audacious Goal (BHAG)? Many organisations don’t know where they want to be in 10 to 20 years, so they don’t know if their actions are right for the long term. Are you spending money and resources being reactive, rather than doing things that move you closer to your goal? Having a BHAG helps to give an organisation its long-term direction and increases its share value to others.
Once you have set your BHAG, you can then determine what you need to do to get there. That is what will keep you sustainably moving forward.
If revenue is increasing, but profit isn’t following suit you need to look at how you’re executing your strategy.
Do your annual plan, quarterly plan and personal plans align to your BHAG? Do they help your team align to the company’s priorities?
Are you executing the right things, to move your company forward as a company? Are you executing them on time?
Execution drives profits and time. Good execution results in higher than industry average profits and more time for management to work on the business.
It may seem obvious, but too many would-be growth companies don’t have the cash they need.
Growth sucks cash – will you have enough cash to grow? Cash is oxygen to a company, knowing your cash conversion cycles and improving them is vital to let your company breathe and grow.
If you do not have the right people – in the right seats – it will be hard to set strategy correctly. Without good strategy, execution is unlikely to happen well or on time and this will directly affect your cash and cash cycles.
The difference between a growth business and a stuck business is not luck. The difference is the attention the growth business has paid to getting its four core decisions right, settin it up for the future it desires.
Leigh Paulden has 18 years’ experience in senior management in the construction and manufacturing sectors, becoming an assistant general manager at the age of 32, and holding general manager roles for ten years. He has 10 years’ directorship experience and is New Zealand’s only Business Coach to have reached Gazelles International Certification. You can find out more at www.advancing-businesses.co.nz