A Simpler Business Growth Model

Whilst preparing a client proposal recently I referenced an HBR paper on the stages of business growth (The Five Stages of Small Business Growth by Neil C. Churchill and Virginia L. Lewis link).

It’s rather old but remains, like all good management models, relevant today. It provides a useful tool for gaining insight into an individual business, its stage of development, strategy and challenges.

It also remains somewhat inaccessible to the owners of small businesses, who might see it as theoretical or even corporate. Their small businesses are not big enough to afford the shamens required to think about and apply these frameworks. From the practical, over-worked perspective of a business owner, the theories don’t look like their business. They must be talking about someone else.

That led me to wondering about what a model that they would find useful might look like. I came up with a three-stage model:

• Stage 1: The business owner does everything
• Stage 2: The business owner controls everything
• Stage 3: Employees control and do everything

In terms of employees, Stage 1 has of course only one; Stage 2 has anything up to, in my experience, fifty (although five to twenty is more typical) and Stage 3 is unlimited – it is a scalable business.

Research from the DBEIS in 2019 (link) suggests that 76% of businesses in the UK are in Stage 1; and fewer than 1% are in Stage 3.

To put it another way, fewer than 1% of businesses are scalable and almost all businesss that employ people have their growth limited, actually or potentially, to what the owner can directly control.

Now of course many business owners will be comfortable with their business as it is and distinctly uncomfortable with the idea of giving up control. But I know from my day job that many are not; instead they are frustrated at their apparent inability to grow their business past a certain point.

The model (let’s call it The Three-Stage Business Growth Model^©) won’t solve this problem but it does I hope make the solution pretty clear:

In scalable businesses , employees do and decide everything. To make a business scalable, achieving this must be the primary objective of the owner.

If you want to learn more about making your business scalable then register for one of these webinars

The Formula for Business

Quite a lot of my time is spent helping business owners develop their management team. In a small business, my client may have had limited management training and the potential managers even less – so they are coming from a long way back in terms of becoming capable and accountable managers.

The effort is worthwhile. Not only are the people concerned loyal and passionate about the product but it avoids the huge risk of hiring senior people from outside the company. Managers from larger businesses in particular can be fish out of water when they move to a more senior position in a smaller business, with disappointment on both sides the result.

This approach requires some simple and repeatable method to develop management skills that can be applied quickly to free up the business owner’s time (usually, the biggest constraint on growth). The approach I have developed uses business processes as “units of delegation”.

Each process to be delegated has a clear start point or trigger and a single output or result. It can be large (like Marketing) or small (like Invoicing). It will have a cost, an average lead or cycle time, a balance, stock or backlog, and defects. These concepts are easy to explain (or draw) and easy to measure. This makes them easy to delegate and monitor.

The point is, every process in every business can be described (and so managed) in exactly these terms. Using this approach doesn’t teach a manager how to manage one process – it teaches them how to manage any process.

In this way you gove them a formula for business.

Of course, the full set of management skills are far wider and deeper than this – but any useful concept, from motivation to return on investment, utilisation to margin, can be related to this simple model as and when required.

If you’d like to know more about applying this to your business then register for one of our events.

Successful Business Owners Are Political Animals

I have often heard business owners decry “the politics” they see as being inherent in bigger businesses. The implication is clear: smaller businesses are free of that kind of skullduggery and self-seeking.

The fact is that many business owners get stuck because they don’t understand that, past a certain size, they need to include political thinking in their growth plans.

Most owner-managed businesses get stuck once they have grown to between 5 and 25 employees. They reach the limit of what the owner can manage on his or her own. There are only so many employees, customers, sales and transactions that one person can deal with.

Think of it as reaching your plate-spinning capacity.

The unfortunate fact is that most businesses (over 99.5% according to the ONS) get stuck like this – even when the market opportunity for more growth is there. They reach this revenue ceiling and there they stay. It doesn’t matter what the owner does, how many hours they work, what fancy marketing they invest in. They have grown as big as they are going to grow.

Of course, a few do grow past this – they must, or all we would have is small businesses. This tiny fraction of business owners realise that continuing to grow requires them to manage their business differently.

Stuck businesses consist of the owner working long hours trying to decide and do everything plus some employees being given tasks and micro-managed. Scalable businesses are quite different. They consist of systems being operated by employees while the owner does very little.

One way to achieve this is to follow The Scaleup Formula©:

Standardised Processes x Accountable Employees x Routine Reviews = Scalable Business

Standardised processes have a clear start and end, a single measurable output or result and a single owner. They have a standard set of metrics covering inputs, output, backlog and defects. They are defined in such a way that the responsibility for results can be delegated.

Accountable employees are autonomous and take responsibility for the results of their processes.

Routine reviews develop management understanding and skills in employees whilst making the responsibility for results real to them.

Over time, The Scaleup Formula© builds a core of motivated and able employees around the owner. In fact, it has developing this core as its prime aim. It is a political process. These employees are fertile ground for improving planning and performance in the business, developing new leaders and eventually creating with the owner that shared purpose that drives great businesses.

If you’d like to know more about applying The Scaleup Formula© to your business then click here.

The Productivity Goalposts Just Moved

I was speaking to a business owner last week. He had had 50% of his staff on furlough but has managed to run at about 90% of revenue.  He was wondering what to do now that furlough is winding down.

His explanation for the higher productivity was that he “kept the A team at work”.

Now obviously each organisation is different, and the impact of Covid varies with industry.  But here are a couple of numbers:

• Output per hour worked in the UK was roughly 15% below the average for the rest of the G7 advanced economies in 2016 (Source:  International comparisons of UK productivity (ICP), first estimates: 2016 – ONS, October 2017)
• There were roughly 33m people in employment in April 2019 (Source: Employment in the UK: April 2019, ONS, April 2019)
• About 9.5m people were put on furlough in the UK (Source: Statista, Aug 2020)

So, passing lightly over the fact that some of this data isn’t very well date-matched, and that today’s working hours and patterns are complicated, we seemed to have about 5m too many employees for the GDP we produced going into covid.  This excludes any market-specific covid impact such as in retail, airlines or hospitality.

Now some inefficient or poorly-managed businesses will have been well positioned to take advantage of the pandemic and so will have thrived despite themselves.  Another group of businesses will learn nothing and, if they survive, will struggle on accepting low returns.  Some will have been productive and efficient already and will stay lean as they emerge.

But some, like the business owner above who asked me that (rhetorical) question will see this opportunity to shed “the B team” and continue to use automation and better organisation to sustain productivity.  It is much easier to get rid of staff when a) everyone else is doing it b) you can blame a virus c) you have suddenly been forced to be more productive with fewer staff in order to survive.

What is this job loss number going to be?  I don’t know but perhaps between 2m and 9m?  An enormous amount of individual grief that should worry us all as taxpayers and humans.

As a business advisor, however, I am more concerneed about those business owners who do not take this opportunity to achieve a step-change in productivity; who think that things will return to normal.  They won’t.  The productivity goalposts just moved.  As UK productivity starts to return to international levels, and more productive businesses start to hire again, you will be gobbled up by fitter competition.

If you’d like to learn how to increase the productivity of your business then perhaps you should investigate some of these training events.

 

More Sales Bol**cks

Growing a sales team is a challenge that every business must overcome if it is to progress past the level of sales that the founder can sustain. Unfortunately, this challenge proves too much for many businesses.

These businesses are marked by a succession of people with the title “salesperson” who arrive full of hope and leave some months later under a cloud having failed to deliver.

Two businesses that I work with have overcome this challenge however – and are growing fast. I thought it would be useful to try to learn from any similarities in their approach. They are in entirely different sectors – one selling software (transactional up to complex solutions sales) and the other a builders’ merchant (almost entirely transactional sales). Both sectors are highly competitive, which makes their performance even more impressive.

The things they have in common are:

• They are both run by people who did not found the business. One was brought in to take over as MD and the other progressed internally from a junior sales role.
• They both use internal telesales teams supported by field sales as their primary sales method.
• They both include a mix of account and new business sales in everyone’s target. The account element has a strong propensity to buy in each case – license renewals and essential materials respectively.
• They both hire people from outsde their industry and often people who do not have a sales background. One hired the chap who ran the sandwich van on the industrial estate where they are located.
• They both see the social and competitive elements of working in a sales team in a single room as being important.
• They both manage using numbers, and salespeople have clear targets linked to their remuneration.
• They are both willing to use the stick as well as the carrot to motivate salespeople; they are both quick to dismiss under-performers.
• They both have established and well-understood sales processes.
• They both have simple competitive strategies and they have processes and systems to deliver consistently on this.
• Marketing is a low priority in one business and moderately sophisticated in the other.

This is hardly a scientific analysis and I dare say it is riddled with my own assumptions and prejudices. However, my conclusion is that what is working for these guys today would have worked for them fifty years ago:

• Their competitive positioning is something that is easily understood by sales and customers
• They see sales as an engine, not some deep relationship with loyal customers
• They are organised and have efficient systems and processes
• They manage using numbers, targets and reviews
• They hire for attitude and quickly shed those who don’t work out

The problem is, achieveing this sales success is much harder work than blowing thousands on building social media followings or talking bollocks about “the new marketing”.

For more on sales and other techniques for scaling your business register for one of our webinars

Let Go Of The Tools

One of my clients had a revelation during our last meeting. I’m not sure if it was a welcome one or not.

He has been struggling to find time to make some of the changes he needs to make. At the start of this meeting he confessed that he’d made little progress because he had spent 90% of his time working on projects (even though he employs two project managers to run these).

When I asked why that was he replied to the effect that a) his employees made mistakes, b) he would do a better job than them and c) he enjoyed doing this technical work.

Setting that to one side for a moment, we talked about ways he might reduce his own workload in the short term – he tells me he is working sixty-hour weeks. Part of this conversation touched on sub-contracting and my client said how attracted he was to using third-parties who worked to a fixed-price and “didn’t need motivating.” We also discussed one of his PMs who is resistant to change and not performing well.

In terms of making his business systemised and scalable he felt he needed to “get over this busy period and then I can set some time aside for this.”

I was not surprised by our conversation. At some point during this systemisation process every client starts to realise that a systemised, scalable business is a state of mind. It isn’t something that is bolted-on, or a one-off project. Owners of scalable, systemised businesses understand that systemisationn never ends but is moved forward every day in dozens of little improvements. They see themselves as someone who spends their time designing, building and improving a business, not doing technical stuff, or even sales stuff.

Above all, they understand that it is their role to develop others. The understand that the only way to grow a business sustainably is by growing the employees.

The country needs highly-skilled and independent professionals who enjoy and take pride in technical work – and make a good living doing this. However, sometimes these people are so successful they find themselves employing others and running a business. The resulting mismatch between their role ansd what they enjoy leads to frustration, unhappiness and sixty-hour weeks – unless they can change their mindset and let go of the tools.

More on this and other management issues at https://www.nickbettes.co.uk

Gotta love numbers

My client is planning to move workshop to accommodate his growing business. He was trying to work out what he needed to do to cover the additional rent.

He has always managed profitability and cash flow pretty well using spreadsheets but he was struggling to produce something that told him what he needed to know to make decisions about the proposed move.

He says he doesn’t understand “accounting” and, like many business owners, his only experience of financial reports is the annual return produced by his accountant. I’ll leave you to guess how thoroughly he goes into that document.

We talked through the reasoning process his plan needed to support; rent (and so costs) up by x (this required a brief discussion on fixed costs).

Employees up by y (this required a brief discussion on fixed vs variable costs). Revenue up by z – this required a brief discussion about productivity, gross margin and sales capacity. What would his net profit be under a range of different capacities and turnovers.

At the end of this discussion I was able to introduce him to his profit and loss statement – until now a baffling and irrelevant tool of the accountant – and show how it is an essential business planning tool – in fact, one we had just used.

I have hopes of building on this lightbulb moment and moving on to his balance sheet and cash flow statement.

If you are a business owner of anything but the smallest business you need to understand financial reports. To do that, you need to work through them each month.

If you want to understand more about using finance to run a better business then take a look at www.nickbettes.co.uk

Managing in difficult times

Running a business in difficult economic times is tough.  Here are a few things you might like to think about:

First thing is a budget and cash flow forecast that shows how you get through the next 12 months – in particular, making some conservative assumptions, do you have enough cash at the start to execute the plan, pay yourself, pay the bills and grow without ever running out?

Next is a clear marketing plan. You know that people buy what you sell but you need to make sure you invest enough and take an organised and active approach to marketing in order to achieve the plan.

Finally, your sales process. Many small businesses can be lackadaisical when it comes to manning the phone, turning proposals around quickly, following them up and so on. Make sure you follow a consistent, managed and speedy sales process so nothing escapes.

By the way, effective marketing and sales require a CRM. There is no excuse for even the smallest business not to have one today – they are cheap and easy to use.

If you'd like some support and advice as you navigate these tricky times then you can get those things here.