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

Why your Marketing Manager is Failing

The word “marketing” is universally used to describe a whole bundle of activities designed to generate business enquiries or leads. This generalisation is not useful when it comes to recruiting marketing staff or outsourcing marketing activities.

Traditional breakdowns of marketing focus on stages (awareness/interest/commitment) or the mix (price/position/promotion) or the proposition (niche/pain/proposition). These are all useful models for developing your marketing but again are not particularly helpful when recruiting or outsourcing.

For example, a role titled “Marketing Manager” in a small business will often encompass a wide range of activities such as marketing strategy, planning, website maintenance, email creation, database list creation or purchase, social media content, telesales, Google analytics, email stats, events – and so forth. Because funds and manpower are limited there is a tendency to bundle anything remotely marketing-related into the job description.

This wide range of activities (and so required skills) can often result in performance issues and even a general reaction that “marketing doesn’t work”. This can be damaging both to the business and the employee or supplier concerned.

It is more useful in these circumstances to think of marketing as being three different sets of skills:

• Strategic (the development of the context and strategic goals for marketing). This requires a high degree of conceptual thinking, the ability to envision the long-term future, a deep understanding of the organisation’s competitive strengths and weaknesses and business strategy. These tasks are best undertaken by the leadership team of the business, if necessary supported by a suitable external consultant;
• Professional creative (the development of compelling messages, content and copy and the selection and set-up of the necessary technology and tools). This requires creative flair, deep knowledge of the tools and techniques required and an instinct for words and images that change what people believe. These tasks are best undertaken by a professional marketeer either employed or via outsourcing to a marketing agency;
• Planning and analysis (the scheduling and delivering of marketing content, the operation of the necessary tools and technology and the analysis of marketing effectiveness). This requires an aptitude for organisation, routine, accuracy, numerical analysis, pattern recognition and structure. Such people are often already within an organisation in administrative, technical or project roles.

Whilst someone employed to do all of these things will, in the right circumstances, improve their understanding and performance in the areas that are not their natural strengths, the talents required are so different that this improvement will be limited. In most small businesses where exemplars or even fellow-marketeers will be limited or non-existent the poor jack-of-all-trades is almost destined to fail.

This may be why your Marketing Manager is failing.

One final note: Telesales is often included under Marketing. If you are lucky enough to have someone who is good at telesales do not waste them on marketing activities. Telesales belongs in Sales, where the required aptitudes and skills are altogether rarer.

Is Business Growth Optional?

A significant proportion of owner-managers are averse to growing their business.  Often the reasons put forward are lifestyle choice, reluctance to employ more staff or fear that quality will suffer.

They of course have a choice – but here are some reasons why growth is necessary for an owner-managed business:

-         Sub-scale businesses suffer from “feast and famine”.  Even relatively modest wins can overload the organisation whilst a slight downturn in sales can be life-threatening

-         A resilient client base implies a large number of clients and the ability to replace them.  It is less risky to be bigger

-         Clients, particularly  big important clients, are intolerant of suppliers who are unable or unwilling to grow to meet their demands

-        There is a minimum size at which a business becomes self-sustaining; that is, where the organisation survives the loss of any individual or client and the capability to survive and thrive is proceduralised within the business processes

-         To be compelling for staff an organisation has to have a vision of something bigger than just the people involved.  They want to be on a meaningful journey that allows them to achieve their potential

-         An organisation has to adapt, evolve and learn in order to survive in a changing environment.   Whilst smaller organisations may be more agile they struggle to carry the overhead of this development capability

-        The bigger members of a species generally get the most food and their pick of mates.  Business is an ecosystem and, all other things being equal, smaller businesses lose out to larger ones as the latter improve margins through economies of scale and spend more on marketing, product development and so forth

-         Even if you have a unique advantage over your competition it is advisable to sell more, invest in developing that advantage and so exclude competition from that space - or risk losing the advantage.  In this way, a behaviour aimed at survival leads to growth

-         Research shows that survival rates improve with business size, particularly where this is combined with a wider range of products*

So growth may or may not be an end in itself but is a by-product of survival - and in turn makes businesses more likely to survive.  Being too small is not a sustainable position.

 *“When is more better? The impact of business scale and scope on long-term business survival, while controlling for profitability”, Bercovitz & Mitchell, 2007

To learn more, contact Nick Bettes via his website

You have a business plan - so use it.

So you have built your business plan.  What now?

Assuming that you built the plan in order to provide a routemap to your business goals then the plan should form the basis for your management reviews from now on

-          In order that you can use it to manage the business the plan should contain

o   A detailed month-by-month budget for the first year

o   Monthly sales targets

o   Monthly marketing targets

o   A small number of other monthly KPI targets covering customers, operations and staff

-          The monthly management review should

o   Be attended by the staff responsible for the above areas

o   Follow a set agenda

o   Be scheduled and diarised for the year ahead

o   Take place as soon as possible after the month end once the necessary figures have been produced for the previous month and year to date

§  Management accounts

§  Sales figures

§  KPI performance

o   Identify variances from plan, identify causes and specify remedial actions

o   Record actions against an owner and deadline

o   Review progress against previous agreed actions

-          The quarterly plan review should

o   Revise the forecast outturn for the year based on performance to date

§  In bigger businesses this may result in a revised budget against which to measure in future management meetings

o   Identify any significant remedial actions required to align with the new forecast, such as redundancies or new premises

o   Be scheduled, minuted and followed-up as per the monthly meetings

-          The annual strategic review should prepare the new business plan

If you'd like to know more about developing a business plan then this event is for you.

Get more great business tips on our website.

Is your business plan STILL insane?

In business planning, sensitivity analysis is a way to sanity-check the assumptions underlying your plan

-          It identifies the variables that have most impact on the outcome of your plan (for instance, sales volume or materials price)

-          In this table, your plan is shown in the “base case” column

	Previous year	Base case	Variance	Best case		Worst case
				Variance	£	Variance	£
Volume of sales	600	660	10%	12%	672	0%	600
Average unit price	£9.09	£10	10%	10%	£       10	-5%	£         9
Sales income	£5,454	£6,600	21%		£ 6,719		£ 5,181
Average unit cost	£6	£6	0%	0%	£         6	10%	£         7
Direct costs	£3,600	£3,960	10%		£ 4,032		£ 3,960
Salaries	£1,800	£1,800	0%	0%	£ 1,800	0%	£ 1,800
Rent	£720	£738	2.50%	0%	£    720	5%	£    756
Net profit	-£666	£102			£    167		-£1,335

-          The best case assumes that you can achieve the best possible values for all the main variables (volume of sales, materials prices and so on) given all you know about the market, your competition and other relevant factors

-          The worst case assumes the opposite and that you achieve the worst possible values for the same variables

-          A credible business plan will be based somewhere in the middle of these two outcomes

-          A credible plan will specify what arrangements you have in place to

o   Ensure that you achieve the best values you can for the variables identified

o   Minimise the impact should key variables go against you

If you'd like to know more about developing a business plan then this event is for you.

Get more great business tips on our website.

Is your business plan insane?

In business planning, variance analysis is a way to sanity-check the assumptions underlying your plan

-          It compares the planned or forecast figure to the equivalent figure in a previous comparable period – usually the previous year

-          It expresses the difference as a percentage

<><><><> <><><><> <><><><>

	Previous year	Budget year	Variance	Assumptions
Volume of sales	600	660	+10%
Average unit price	£9.09	£10	+10%
Sales income	£5,454	£6,600
Average unit cost	£6	£6	0%
Direct costs	£3,600	£3,960
Salaries	£1,800	£1,800	0%
Rent	£720	£738	+2.5%
Net profit	(£666)	£102

-          Your wider business plan (strategy, market positioning, sales performance, supplier management and so forth) must then provide an explanation for any difference

-          This will expose any assumptions you have made and the potential impact on your business should they prove to be wrong

-          In the above example, the plan is based on increasing the number of sales as well as the price whilst holding unit costs and salaries to the previous year’s level

-          These might all be reasonable and achievable but a credible business plan must explain how and why these things are going to happen

  If you'd like to know more about developing a business plan then this event is for you.

Get more great business tips on our website.