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What Do High Growth Businesses Do Differently?

Over the past 5 years the importance of the “High Growth Business” and how this relatively small group of businesses disproportionally impa...

Tuesday, 21 June 2016

What Mike Ashley Has Taught us About High Growth Businesses

Introduction

Successfully managing high growth is hard. We got an insight of just how hard, with recent revelations about Sports Direct from its owner Mike Ashley. Although the sceptical amongst us might consider some of his statements as a bit of window dressing. There is no doubt that recent events have brought into sharp focus just what can happen in a business when High Growth becomes “too much growth”.

Successful High Growth is not merely about growing your customers, but rather being able to deliver the sales that you have won. For many tech companies, it's relatively easy, it simply requires more hardware to support scale. For a more traditional business, things are a bit more complicated. In Sports Directs case it’s about mobilising the supply chain so that when someone buys online, the product can be delivered, which assumes it’s in stock, which means it’s been ordered from the manufacturer, typically in the far east, in time to meet demand. It also assumes that there are sufficient people in the right place to make this happen.

Culture

You’ll recall a number of statements by Ashley to the MP’s select committee about his shock over some of the working practices and the “Culture of Fear”. This rather indicates that the Culture in Sports Direct had gone bad. This is probably because the business had grown so fast that new employees did not buy into the existing company culture and allowing an aberrant form of the Culture to grow. 

This happens because the people who perpetuate and enforce cultural norms are the lowest level of management. It is they who come face to face with new employees and will have to explain why things are done the way they are. It also requires support from the company leadership to underline the importance of the company’s cultural norms.  When these “custodians of the culture” become overwhelmed with new employees the existing culture breaks down. What rises in its place is a culture driven not by company values, but rather by the force of individual personality. 

How easily this happened depends on the strength of the company’s culture in the first place. If it’s not very strong, then you’re pushing at an open door. 

Process

Processes like culture can also break down under the strains of growth. In fact, successful businesses are constantly reviewing processes to maximise performance.

It seems that this idea has been lost on Sports Direct and their processes were not fit for purpose. To be fair some of this is simply a result of just how successful Sports Direct can be. You might recall Ashley saying that on some sunny days, demand can increase by 25%. That puts tremendous pressure on the business to perform. The problem for the company is that it has not separated human processes from fulfilment processes, it has simply failed to recognise that people perform better in a positive environment, bullying and intimidation only work up to a point, but in the longer term people just do enough to get by; meaning that productivity remains stubbornly low. You’ve got to ask yourself how productive some can be when they reach full term of their pregnancy.

What seems clear is that insufficient time has been spent on making these processes perform. 

Leadership


Mike Ashley talked about the business outgrowing him. The more sceptical amongst you might see this as a way of mitigating his failure to lead. The leadership of Sports Direct have been simply unable to get back control of the business. The failures highlighted in their distribution warehouse demonstrate that the Leadership team we unaware of what was going. Now, whilst I accept that in a big organisation, problems like this can arise, what is clear is that this has been a long-term issue and signals a clear failure in leadership. So Mike Ashley might be speaking the truth when he says the business has outgrown him. 

Conclusions

What are the key lessons we can draw from this sorry state of affairs? For a start, never underestimate the negative effect that bad culture has on your business performance. The stronger your Culture, then the faster you can grow without an unacceptable dilution of your cultural values.  Culture starts from the top everyone takes their cue from those more senior to them. If you as a Leadership team don’t overtly support and maintain your cultural values then don’t expect your staff to act any differently.

If you are building your business; growth will start to undermine your processes. Making time to keep them as efficient as possible will put less stress on your people and enable you to continue to growth efficiently and profitably.

Understand how susceptible your business is to the pressures of growth. The more you are people dependent in delivering increased sales the more challenging the high growth environment becomes.
Managing a growing business is hard. The entrepreneurial skills you need to create a high growth start-up, are completely different to the management skills you need to run a large corporation. You can see this by looking at just how few individuals manage to achieve this transition. 

It’s no failure to recognise that you need to bring in business management expertise to take you forward. Sadly, it has needed some public humiliation for Mike Ashley to recognise this fact, and it’s not something you want to have to go through to reach the same conclusion. 

Tuesday, 26 April 2016

Monday, 25 April 2016

What Do High Growth Businesses Do Differently?

What Do High Growth Business Do Differently?Over the past 5 years the importance of the “High Growth Business” and how this relatively small group of businesses disproportionally impacts our economy, has become widely recognised.  Firstly, let’s just clarify what we mean by a High Growth Business. The generally accepted definition is a business that is growing at a minimum of 20% per annum with a turnover of at least £500,000. 

The now defunct, Government supported GrowthAccelerator service, recognised the importance of this group and provided financial support to stimulate further growth through business advice and leadership & management training. 

Despite its importance, there is very little empirical evidence on what businesses do that is likely to make them a candidate for high growth and how they maintain a high growth state.

However, a report published in the USA by Hinge Marketing as recently as February this year, at last, gives us some empirical insight into the workings of these businesses. It looks only at service businesses, but the results are from a sample of over 500 firms.

I don’t propose to give a blow by blow account of the report but rather pick out some of the more interesting findings. There is a link at the end of this article for those who want to read the report in full detail.

One of the most surprising findings was that High Growth Businesses were 45% more profitable than their no growth counterparts. Put another way, High Growth Businesses in this sample had an average profitability of 19.9% compared to 13.7% for No Growth Businesses. 

This finding seems to defy gravity as conventional thinking tends to suggest that in the high growth phase, businesses substitute top line growth (turnover) for bottom line growth (profit). The report itself doesn’t analyse why but having thought about it a bit, I’ve a couple of suggestions. 

Firstly, High Growth Businesses tend to be better run. In order to sustain high growth, the leadership team needs to have a detailed understanding of how different aspects of the business interact. That tends to mean that they are more efficient as a business including delivery and managing creditors. On the other hand, I know from personal experience that many High Growth Businesses can also be rather chaotically run and certainly aren’t then efficient.

Secondly, could be the adoption of technology. By employing technology appropriately, you can substitute new recruits for capital investment. This means that you can reduce the level of recruitment for any given level of growth. In my experience it is the need to recruit, and recruit heavily, that impacts profitability because it often takes several months for new starters to add value to the business. 

I don’t have a clear answer as yet but do hope it’s something that is followed up in a later survey.

The survey also looked at how firms differentiated themselves: this also generated some startling differences.

In response to the question “What are your five most favoured differentiators?”

High Growth Businesses listed;
Our marketing/ business development approach
Our culture
Our business model
Our use of technology
The quality of our people

No Growth Businesses listed;
Our commitment to results
Where we are located
Awards we’ve received
Our reputation
The specialised services we offer

What is blindingly obvious is that these two groups focus on completely different things and if you wish to embrace high growth there may need to be some significant shifts in your way of thinking.

Let’s now turn our attention to how the two groups approach marketing. The survey uses the idea of Total Marketing Effort, which represents an approximation of the sum of explicit marketing costs and implicit costs such as time or diversion of expertise. The rationale behind this is that no marketing is free because marketing time often competes with billable time.

In respect of total marketing effort, High Growth Businesses investment are slightly less than No Growth Businesses at 55.7% to 58.8% respectively. This may also be somewhat of a surprise as I suspect many would expect High Growth Businesses to be spending a lot more on Marketing. 

Logically then in order for this to be true, High Growth Businesses must have much more effective marketing. I think this goes back to a point I raised earlier that because they have a much better understanding of their business they get more “bang for their buck” out of each pound of investment than their No Growth counterparts.

What is more, High Growth Businesses invest their spend very differently. High Growth Businesses spend much more on digital marketing. Comparing these two groups again, High Growth Businesses only spend 40% of their marketing effort on traditional marketing compared to over 50% by No Growth Businesses. By contrast, High Growth Businesses are much more heavily invested in digital marketing, where they spend 60% of their effort. 

Also, as you might expect because they are more rigorous in measure relevant metrics than traditional businesses. Typically High Growth Businesses monitor at least 4 separate metrics where No Growth Businesses monitor just over 3. This might be for two reasons, firstly, digital marketing is easier to track, therefore building reliable metrics is simpler. Secondly, though perhaps a more circular argument, is that they run their business more effectively which means they’d rather spend their marketing investment where they can monitor its performance which would bias them towards digital marketing.

So what are the takeaways from this survey?

If you want to have a successful High Growth Business, then you need to take a holistic approach and look at how your business can best deliver what you are selling. The idea that culture and people can be a compelling differentiator at the strategic level might be a surprise. However, if you look at many of the highly successful businesses of the recent past, these two components have been key attributes to their success.

Marketing isn’t just about spend, it’s also about finding the right techniques to use. Currently digital marking is delivering a better ROI, however, that might just be because traditional marketing is harder to measure, not that it’s less effective.

We are a specialist High Growth consultancy. Using our Seven Steps programme we can help you set your business for long term High Growth. For further information please go here 

This article was originally published on BusinessZone.co.uk

For a full copy of this survey go to Hinge Marketing

Wednesday, 25 November 2015

Staying Ahead of the Hammer - How to Build and Manage Your Business to Achieve Long-Term High Growth

Staying Ahead of the Hammer - Laurence Ainsworth
The challenge for high growth companies is how to sustain growth. It's a sad fact that 40% of companies that experience high growth go through a period of contraction immediately afterwards.  The issue for High Growth businesses is often not only how to develop sales but more importantly, how to deliver against the increased sales that they've made. Put another way the growth of the organisation to deliver increased sales has fallen behind the rate of growth of sales themselves. This simple imbalance almost inevitably results in a hard landing for the business.

Over the last 5 years, we have developed a model to help High Growth businesses meet this challenge. We call it Staying Ahead of the Hammer. It's based around seven key elements that help business owners understand and prepare for coordinated organisational growth. 

Our experience using GrowthAccelerator clients as well as other high growth clients have delivered an average growth rate of nearly 50% with profit growth of 46%.  The real value of our approach is to enable sustainability of high growth.

Our approach is based on seven areas. The Keystone is helping businesses develop a Vision for their business. “A vision provides the reason why you are in business and as a decisive leader gives you the direction around which to enthuse your team and your customers.”. Next we get owners to look at the Culture of their business to see if it supports or hinders a high growth environment and the level of employee engagement.  

Having looked at what I would call the infrastructure of the business we turn our attention to Strategy and Planning. This section helps Leadership teams build a strategy and just as important develop a process to implement it. “In a High Growth Business you have little time to ponder about what might be happening in your business. Having a clear strategy and an implementation plan gives you detailed landmarks which will quickly identify when things are off course.”

The following four areas the first is Talent Management: “People are a business’s most important asset and recruiting the right people is fundamental to its success. Existing staff will fall into two categories; those who can grow with the business and those who can't. Knowing how to get the most out of these two sets of people is key to any long-term success.” 

We move on to Financial Management and Control: “Accurate and timely financial information which goes beyond the basic P&L and Balance Sheet is necessary to enable the owner or his management team to identify issues early enough to take the necessary corrective action.” Decent financial understanding of the business mechanics is a very common weakness in high growth businesses. We help businesses understand that you can't have too much financial information about your business. This is because you often confront problems where you have no information on which to make a decision. In such circumstances, it's almost impossible to make the best choice. We also use this mechanism to help businesses understand the need to look forward as far into the future as they can in order to identify potential issues before the become major problems.

Our penultimate section is on Organisational Efficiency as “There is nothing customers and suppliers hate more than inconsistency in their dealings with a company. The value of processes is that they bring that consistency to the vast majority of interactions and at the same time deliver a framework for increasing company productivity.” We also introduce the idea that businesses should be output driven (KPI's) rather than input driven undirected hard work.

The last area we look at is Business Development. This often because getting sales is the least of the businesses problems. What they do lack is understanding how to reliably forecast sales as “Accuracy in forecasting sales and, therefore, income, is vital to drive the cash flow needed to support a High Growth Business”

The model itself  has the flexibility to allow businesses enter at different points depending on what is causing them most pain. Inevitably they will have to come back to the Vision element and work back through the model.

This has been turned into a book which is released on 27th November. It is one of the few comprehensive books on high growth and what it takes to maintain growth over a number of years. Balancing these several elements is what makes this process such a challenge.  

For those of you who are interested you can get the book at Staying Ahead of the Hammer .

I look forward to hearing your comments



Wednesday, 6 May 2015

Are You Squeezing the Lemon?

I've seen in recent weeks a whole raft of articles and blogs about the need to grow your business and how you can grow sales by using various channels from Facebook to plain old cold calling. As usual this is the easy target because most businesses have a need to get more sales.

I thought therefore it would be interesting to focus on a different area of the business and one which can just as easily wipe out your profits as a lack of sales. That is your the processes you use to deliver what you sell and collect money from your customers. I call it squeezing the lemon because in or to help maximise your profits you need to squeeze every once of efficiency and productivity out of you delivery systems.

Are You Squeezing the Lemon?

The problem is often that this is the part of business operations that is often overlooked. As is collection of money. In a recession we all say that cash is kind, but its no different now that things have improved. Almost invariably as sales improve the focus moves away from collecting the money. This is the equivalent of restricting the supply of oxygen to a mountain climber. Yes they might manage to go on but it just makes it a lot harder, and is so unnecessary.

The most obvious measure is your debtor days which is simply the amount of money currently outstanding divided by your current turnover times 365. Your objective then is to keep your debtors days don as low as possible. This keeps cash regularly flowing back into your business and will support further growth.

Squeezing the Lemon isn't just about cash but your whole production and sales support processes.
For example, its making sure that you keep your product delivery times the same, and that you don't allow your quality to be compromised. Or that you have sufficient resources to deliver the same or better quality of proposals to the increased enquiries from customers and prospects.

How might you do this? I know a number of accountants have an ability to benchmark your business against similar organisations in your industry. This will give you a broad areas where you over or under perform your industry average.  If you accountant can't help you then its up to you to start finding out how your business is performing. You can do this by setting clear targets, often called KPI's, about the expected performance of parts of your business. I would suggest that you should be setting KPI's for your business anyway.
This could be as simple as:
The average response time for a query into the business.
The average time to produce proposals.
The target time to produce a sub-component.
The target for the percentage of goods delivered on time
The target for the level of customer experience

The key point here is not to take your eye off doing the basics properly and as efficiently as possible. Even a small, 5%, fall off in performance in a couple of areas can have a material impact on your bottom line.

For example, I worked in an automotive business and we had regular quarterly meeting to`see if we could reduce the time taken to produce our 10 biggest sellers. We were often able to save 1% in time by making changes to how we manufactured the components. That's 4% per year, but measured over 10's of thousands of items it has a big impact and can often be the difference between making a loss and making a profit.

The thing about Squeezing the Lemon is that you are constantly looking for improvements in performance to minimise the your costs of production. Normally we all focus on this in a downturn because with lower sales we must reduce costs. By contrast, as soon as sales rise we have a tendency to put efficiency on the back burner. Surely it makes sense to keep squeezing the lemon even when sales are up.




Exigent Consulting provides specialist services for Managing High GrowthBusiness Turnaround, and Mentoring to the Small and Medium Business. We help business owners improve the profit performance of their business. 


Tuesday, 17 February 2015

Driving Change

As a business leader it is always your responsibility to make sure things happen. When its in the companies and therefore the individual's comfort zone thats pretty easy. Often all it needs is a light hand on the tiller to make sure actions get completed on time.

When it comes to change in the business or the push for further growth then the situation requires a much more robust approach. One of they key messages here is that you set the standard. As the leader, whether you're a unit head or CEO everybody including your leadership team will take their cue from you. So if you are less committed to an outcome than your leadership team members they will default to your position. 
English: Change Management's Approval flow Ita...
English: Change Management's Approval flow Italiano: Change Management, flusso della fase di approvazione (Photo credit: Wikipedia)
To effect change in your business you have to demonstrate you are totally committed. This means that you have to be an extrovert in your commitment to the new position whatever kind of change that might be. The more obvious your commitment, more likely you'll succeed. Whilst this public relations initiative is important, commitment alone wont get the job done. People are creatures of habit and change is unnerving, if you want to see this in action, next time you're at a conference, when you come back from a break sit where another person has sat and just see the looks or comments you get. I see it regularly where neighbours with only "on street parking" start to argue if other people park in "their space".  The bigger the change the more people will resist. To succeed in this endeavour you need a clear process to follow to maximise your chances of success.

Step 1  Do a plan of the change process. 


Plan where you are going and what changes in business practises will be necessary to get you there. As part of that process you will need to identify what you are going to do differently and how that will change what gets measured.  This part is particularly important as it will be these changes in your priorities which will be the source of most concern to your people.

Step 2 Be the First to Commit


You must be the first to commit to the changes. Having identified your new KPI's(key performance indicators) start asking for information that supports your new commitment get people used to the fact that you've changed.

Step 3  Involve Your Leadership Team

Involve Your Leadership Team
(Photo credit: Wikipedia)

This is a two part process, firstly get them together and a group and discuss your plan for change. Take feedback from the group obtain their buy-in for the change process. The second part is to meet each of your leadership team individually and discuss their own commitment to change and re affirm individual buy-in and agree how they will roll it out in their area of responsibility.

Step 4 Set up regular reviews


Use them to discuss progress and address issues where individuals commitment needs to improve. Identify the change blockers within your organisation, and set a course to neutralise them.

Step 5 Drive Change Down Through Your Business


Get your leadership team to adopt a similar approach with their own team, as you have to the leadership team.

This much more likely to deliver a successful change programme as it is driven down through the business. Regular reviews will identify issues  which can be considered and the appropriate solution implemented.  

If you need to achieve significant or rapid change its a good idea to do this through small multiple steps. You see once people make one change, the next becomes easier, the third easier still and suddenly change becomes the new norm. 

To illustrate this let me recount how this was illustrated in a recent workshop I attended. Complete strangers were paired up and the rules were simple, take in turn to make one change about your appearance, the other person then had to identify what the change was. So one person would turn their back whilst the other made a change. Initially the changes were subtle and slow as peoples natural caution to change manifested itself, it was often something like a slight adjustment of a tie or removal of glasses. By the 5th round they were rapid and even outlandish, with jackets, shoes and even shirts were being removed; people had very quickly got comfortable with change.

Change still requires significant effort but the more frequently you pursue it the easier it gets.




Exigent Consulting provides specialist services for Managing High GrowthBusiness Turnaround, and Mentoring to the Small and Medium Business. We help business owners improve the profit performance of their business. 


Monday, 15 December 2014

Is This the Worlds Worst Sales Qualification Question?

Over recent weeks I've seen many businesses fall into this trap and rely on what I think is the world worst sales qualification question. It seems to be especially prevalent in micro businesses and in the creative industries.

In my opinion sales qualification is one of the most important aspects of closing sales. Unfortunately these days most experts seem to concentrate on closing, however proper sales qualification makes sales closing easier. Good sales qualification will help you identify early in the sales cycle those prospects most likely to commit to buy from you, and at the same time help you shorten the sales cycle. Something that we all want. Poor sales qualification, by contrast, results in the opposite leading to a lot of wasted effort and fewer sales.
English: Priit Narusk in the qualification for...
 Priit Narusk in the qualification for the Tour de Ski in Prague.  (Photo credit: Wikipedia)

As we come out of our sluggish economy the number of sales opportunities increases as potential buyers prepare to invest. As providers of products and services we enjoy more sales conversations unfortunately this new found wealth of prospects is ruined by one single question which kills time and is our own work creation scheme. On the face of it this question seems quite sensible and for the inexperienced sales person a good one. Nothing can be further from the truth. 

The culprit for this colossal waste of time the question "Can I write you a proposal".

Why? The answer to this question is almost invariably "yes" so off you go thinking that you’ve progressed the sale because they want you to write a proposal. In reality you've done no such thing. Ask anyone if you can write them a proposal, ask your mates, your competition even the bloke on the corner, they'll all say yes because that question means nothing. Knock yourself out, write me a proposal, in fact send me three because that question commits me to absolutely nothing but creates a whole lot of work for you. What you have really asked me for is my permission to let you rush off and write something, so why I shouldn’t say yes? It has not tested in any way at all, my desire to purchase from you.

The result from his single question is many fruitless hours putting together proposals in which your potential buyers have absolutely Zero interest. That's why its such a poor question.

If you can't resist asking this question, then at least have a good follow up question. This follow up question will help you stop becoming a work creation scheme. It goes like this "Thanks for allowing me to provide you with a proposal, can we arrange a short meeting in a couple weeks time to review it"? If and only if they agree to that meeting is it worth your while writing them a proposal.

The next time you are tempted to ask a prospect "Can I write you a proposal?" remember on its own it’s probably the worlds’ worst sales qualification question. So don't waste your or your sales teams’ time pointlessly knocking out proposals, get a commitment from your prospect first.




Exigent Consulting provides specialist services for Managing High GrowthBusiness Turnaround, and Mentoring to the Small and Medium Business. We help business owners improve the profit performance of their business.