The Blocked Growth Case

Company transformation is a recent buzz phrase.  What does it mean?  What’s involved?

Transformation, in our terms, means taking your company to a safer place and one where the company is more capable of sustainable growth.  Which implies you need to find out:

  1. Where you are;
  2. Where you want to be;
  3. And how to get from A to B.

In this blog we’re going to talk about Blocked or Negative Growth companies.  The symptoms are straight forward; you’re exposed to changing markets which leave youGrowth Map with a falling customer base.  With that usually comes a fall-off in the size of average sales and of margins.  Which, in turn, means there will be growing cash flow pressures.  This is not a good place to be.

The Growth Map, opposite (Sector 4) shows the case of companies which have capacity to supply but are lacking opportunities (willing customers).

Are you in this space?

Our GrowthMentor Assessor helps you find out where you are (link on Home page).  If you complete the 10 minute process you’ll end up with a diagram which could look like this if you’re in Sector 4.  The example company has strength in Production & Delivery, reasonable Goals, and reasonable Corporate Support (company-wide management).  But its Sales & Marketing is weak and its Future Development is very weak.  There are no prizes for guessing what the for company survival.  Transformation is required.Assessor - B&NG

The instinct of companies in this situation is to immediately strengthen the Sales & Marketing arm of the company
.  Got to get customers!  Need more Marketing!

But, if the problem is falling or changing customer demand, there’s not much point in flogging a dying horse.  What’s really required are new ways to find and serve customers through Opportunity Generation (finding and validating new opportunities) and Customer & Product Development (converting these opportunities into high-margin, readily saleable products and services).  Straight forward?

Not straight forward, at all.  This calls for transformation – a change of direction and a new pathway.  Which could involve new skills, new investments like R&D and plant, and a new business model.  So you need to start at the beginning – not in the middle.

What do the company’s shareholders want?  How do they want to get there?  How do they want to see the company managed?  What sort of investments are they prepared to make?  In other words, you need to re-orient and update your Corporate Support.  Then, you can more safely tackle Future Development.  Which will lead to a new Sales & Marketing view of the world.  And possibly require you to change your Production & Delivery as well.

So, to sum up:

  1. You can find out where you are using the Assessor on our Home Page and by thinking about the Growth Map above;
  2. If you’re in the Blocked or Negative Growth Sector, you need to navigate to the Sustainable Growth Sector by increasing your Opportunities while retaining your Capacity;
  3. But you need to creep up on the Future Development space by resisting the temptation to just throw Sales & Marketing at your current customers.  Instead you need to back off and re-orient your company’s basic direction first.  From that Future Development and new Sales & Marketing campaigns follow.

Is this easy?  No it’s not.  But it’s likely to work better than any other strategy.

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The analytical CEO – and the future

The future is hard.  It’s all out there but we’re not quite sure what it’s going to be.  If you’re an optimism you know it’ll be better than the past; if you’re a pessimist you know it will be worse; if you’re a realist you know it will be different.Thinker Good companies are learning companies so realism is the way to go.  Here are three sets of analytical thoughts to use.

Learn From The Past

Think about why you were really successful.  Then deconstruct that to find the elements which are not time-limited.  Such as quality, design, customer responsiveness as opposed to cashing in on a one-off bonanza of government regulation (for instance).  Build the durable bits into your next steps. Think about why you weren’t successful.  Be tough on yourself.  Eliminate these business strategies from your toolkit and these unproductive lines of thinking from your mind.  Learn!

Have Options

Don’t be like the criminals in the Film Bandits who saw every possible option for gainful employment through the prism of robbing banks.  (’But we’re bank robbers.’)  These attitudes shackle you to old business models and old ways.  You need imaginative options that play to what customers are going to want and to what you’re good at. Peter Thiel (Zero to One, Notes on Startups or How To Build The Future), who started Paypal, points out that if you have 10 opportunities one of them is likely to return as much as the other nine combined.  The problem is you don’t know which one. Options are essential, as is the willingness to move away from opportunities that are going sour.

Make Sure Your Options Are Value Builders

What do your reasonably validated forecasts show (ie; future profits and the necessary development costs of development and getting ready for market)? It is easily possibly to run discounted cash flow rulers (or discounted profit vs cost rulers) over projects.  Do profits come out ahead?  If they don’t. why are you thinking about that opportunity? A really good quick check is to compare the opportunity’s total likely EBITDA (Earnings Before Interest, Depreciation & Amortisation) with the total estimated development costs.  If total EBITDA falls short, think hard!

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The Analytical CEO – integrating what your company stands for

In my last blog, I looked at the different marketing options a business had to develop new business.  Both to replace any decline in existing business and as a basis for growth.

It’s now a good time to pause, and think about the way a business projects itself in its market place.

Model (Normann)

The diagram opposite is adapted from Richard Normann’s Service Management to suit any sort of business, not just service ones.  (Normann’s book, available from Kindle Store, is ancient but still very worthwhile.)

You can see Values is at the centre of everything.  By values I don’t mean the self-focused sort about ‘being the best in our field’ or ‘acting with integrity’.  These are important, but less so that those that define how you’re going to provide your customers with a deeply satisfying experience in using your products and services.

A couple of weeks ago, I was talking with a manufacturer of innovative welding products who said they’d realised they needed to provide the same sort of pleasure of use for their customers as users get from Apple products.  Indeed, they recognised their competitiveness shouldn’t be based on price but on user satisfaction.

So there’s a powerful link between Values and Customers.  If this isn’t working, your customers aren’t going to value you as a partner in the success of their companies, you’re simply an also-ran provider.

Which brings us to Value Proposition.  This is the innovative way that you solve a pressing customer problem or need.  To be attractive to customers it has to help them make their business models work more successfully (B2B) or their lives richer (B2C).  So it has to fit with customer needs and the company values.  Providing a good user experience is important; providing a good user experience about something that’s really important is a winner. 

And so to Operations.  The company’s Sales & Marketing and Production & Delivery has to be run in a way that sustains and draws on the values that satisfy customers.  You can depend on it that these will suit the way you’ll want to run your business, too.

And now to Brand.  Brand is an effective public expression of value proposition and values.  It should capture it is that customers will prize; and what you’ll feel proud of.  Getting brand right allow you to get your marketing communications right and your internal communications, too.

Try the diagram on your own companies and see how well the different elements align.

 

 

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Growth and New Business

It is almost an iron law of business that your existing business will erode each year.

Just as disorder increases with time (the Second Law of Thermodynamics), that happy marriage between existing products/services and existing customers is going to fade away.  Disorder at work.

We encourage business owners to think about their retention rates for existing business.  Let’s say this is 90% in each year.  That means you need to find 10% of last year’s sales from new business to stay in the same place.

Now if you also want to grow, and we’re growth advocates, you’ll need to find these sales from new business, too.  So, if you want 10% growth, then you’ll need to find 10% of new business to stay in place, and another 10% to meet your growth target – ie; 20%

So what’s new business?

  1. BB New Biz1

The Boston Box above shows new business being developed by:

  1. Taking your existing offerings to new customers;.
  2. Developing new offerings for your existing customers;
  3. And, developing new offerings for new customers.

(By offerings, we mean products and/or services).

In general terms, risk and cost increases from (1) to (4) and the strategies required for each is different; ie:

  1. Before taking on new business strategies you need to ensure that your existing business retention rate (at sensible margins) is kept as high as possible.  This means having a high customer relationship focus to maintain repeat purchases.  This is your first step and not usually hard on cash;
  2. This is a low to medium risk strategy.  You understand the offering well, you simply need to ensure that the customers you’re targeting have the same buying behaviours as your existing customers.  But beware!  It is easy to complacently assume this is so and then, painfully, find out it isn’t.  You need to research your new customer groups to understand their preferred buying reasons.  You also need to ensure that the market they represent is big enough to repay the effort.  This is harder on cash – converting new customers costs;
  3. This is a medium risk strategy.  Based on a really good understanding of what else your customers want to buy (and see you as a viable supplier for), you can develop new offerings at an acceptable risk.  But you can’t make assumptions.  Validation of customer buying reasons and market size are absolutely critical.  But you can leverage the advantage you have in existing customer relationships.  Even so, this strategy is harder on cash than (B).  Building new products and matching these (even) to existing customers is expensive;
  4. This is the homeland of tech companies and start-ups.  It is high risk because you have to get the combination of new customers and new offerings right.  You are dealing with two degrees of freedom and it is heavy on cash (and time).  Remember those wry observations by product developers about projects taking twice as long and costing twice as much?

So which strategy should you choose?

This is a bit like the Irish joke about where to start a journey from.  The newer your business is, the fewer options you have.  And if you’re brand new, you’re inevitably in the high risk quadrant.

In broad terms, you want to squeeze as much as possible from your existing investments in offerings and customers.  So it’s logical, when developing marketing strategies, to work methodically from (1) to (4).

We encourage CEOs to use this type of matrix to think through where new business has to come from, and then to match this with suitable strategies to manage risk and cost while getting results.

 

 

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Learn Quickly or Fail

One of the great things about the Australian Regular Army, my first regular job, was its relentless focus on learning.  In my case I did four years at the Royal Military College, six months learning to be an Engineer Offices, and rounds of qualifying courses for promotion.

This was not static learning.  The Army was quick to learn the necessary lessons from current or recent operations.  These were shortly applied formally, but first from the presence, throughout the structure, of people just back from Borneo and then just back from Vietnam.  Unconsciously, they became organisational mentors and change agents.  Recent oral history and personal behaviour were powerful influences. 

Mind you, some lessons had to be relearned.  In my day, while the fighting arms were pretty current, the logistics side struggled initially from lack of recent real-time experience.  The logistics deployment into Vietnam was initially a mess.  But it very quickly improved.  And worked well from there.

Now SMEs are much smaller than the Australian Army and consequently much, much more nimble.  But the same needs apply.  You must learn quickly, or fail.

If you don’t, a changing environment and poor internal performance will get you.

Which brings us to the role of the CEO (who usually has the most to lose from failure, as well).

The CEO has to combine those functions the Army has of instruction, coaching and mentoring.  In small organisations, the differences between these blur.  But consider:

  • Instruction – the need to teach your organisation how to learn.  This is best done by example and doing – not through abstractions and certainly not from business book written for managers in billion dollar US business units;
  • Coaching – helping the company team (including the wider team) focus on what needs to be learned;
  • Mentoring – helping the company team successfully apply and then review the lessons learned. 

To do this requires a strategic view of the world.  What do you need to improve now; what changes can you anticipate and prepare for?

This is one of the biggest challenges facing the CEO.

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Investing in Sustainable Growth

This blog is aimed at those of you who are major shareholders in your businesses.

This investment is probably your largest and most important.  It should be treated as such.  If you manage it right you can increase its value annually at a better rate than you get from depositing the money in a bank or investing in the share market.

You have to make sure you have sustainable growth.  When you do, the value of your business grows continually through increasing profit, and you can fund this growth without increasing debt or seeking external investment.

We’ve worked with and researched hundreds of sustainably growing businesses.  Here’s what we’ve found is a typical profile.  Sustainable businesses are:

  1. Outward-looking – focused on markets, new technologies, customers;
  2. Investing in new offerings – annual investments typically of around 10% of annual Sales in validating and bringing to market new opportunities;
  3. Investing in marketing  – commitments of up to 10% of Sales in Sales & marketing;
  4. Innovative – always looking for better ways of bring successful products to customers;
  5. Learners and users of external help – they don’t try to do everything themselves but are good learners.  They are also open to using expert help where this will help them succeed.

We’ve also asked over 500 SME CEOs of growing to assess their preferred behaviours.  We found there was a concentration of behaviours on:

  • open-mindedness,
  • learning,
  • adept problem-solving,
  • strategy and system thinking,
  • and determination to succeed.

The CEO findings mesh well with the business profiles we discovered.

If you want to have a quick look at your business profile you can use our free Sustainable Growth Assessor.

If you’re a CEO, we have a further Assessor as part of our GrowthMentor subscription package. You can use this to look at your own performance..  And also a much more detailed Growth Readiness Assessor for the whole company.

Investing in the Right Things

In order to help you invest in the right areas of your company the right way, we’ve captured our research and experience and built this into our GrowthMentor online Sustainable Growth Modules.  These modules are being launched progressively over the next six months.  They are an accessible, affordable way of tapping into sustainable growth best practice.

The first package, available in November, is our Growth Platform (“The CEO Package”) which assists you confirm the position of the business, set new Goals, and overhaul the way the business manages.  It will be followed by modules on developing new business and on improving current operations.

We know, from our work with SME CEOs, that mentoring is highly valued as a way of accelerating learning and assisting implementation of new arrangements.

To that end we are establishing the GrowthMentor Mentor network.  We’re choosing people who are experts in using our online system, and who have successfully managed businesses themselves.  They can help you use the online system much more effectively to identify and implement improvements.

And to increase access to our new services, we aim to work with Partners such as Councils, and Regional Development and Industry Organisations to promote availability of the services.

Have a Look

We encourage you to explore our website and the different downloads to see what might suit you.

We look forward to the opportunity of working with you.

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