This kind of growth has three distinct phases
- In phase one the focus is on clearly defining and refining who you are and what you do
- Phase two focuses on expanding the footprint of the business
- In phase three, the focus is on maximising profits and cash flow from the business base
Year 1: Define and refine who you are (and what you do)
First, you need to create a solid platform for growth. You can’t grow a business without a solid foundation, and this starts with focusing on your internal processes. You need to get your people, offering and processes right before you can replicate them and take them into new markets.
1. Build the right management team
Without a good management team even the best businesses fail, while great management teams can turn a mediocre idea into a successful business. Ask yourself these questions: Are there any weaknesses in the competence and quality of my management team? Do I have the right management team to grow my business to five times its current size in five years?
Note: Priority number one is to get the best possible management team in place.
2. Establish goals and checkpoints
Goals influence behaviour because people are inspired by ambitious goals. If you want your management team to perform, you need to inspire them – big, hairy, audacious goals start with you. In order to grow your business, you need to have a clear picture of where you want to go, and how you will get there. You then need to show your team how you will all get there together.
Note: Priority number two is to develop clear, ambitious goals for the business. Define the checkpoints that will keep you on track so that you can achieve this goal.
3. Define and refine the value proposition
In order for a business to be successful, it needs to add value. It’s a simple equation: Value proposition = benefits promised in exchange for customer payment.
But, if the value of those benefits doesn’t exceed the actual cost to customer, you won’t create a sustainable business, because you won’t grow customer loyalty. So, put yourself in your customers’ shoes and work out what they would consider real value in exchange for what they spend.
You need to constantly be defining and refining value from your customers’ perspective – not yours, theirs. The trick is that you can only do this if a. you are absolutely clear about what you are selling, and b. you understand what it is that your customer wants and is paying for.
For example, Fedex might deliver packages, but what it sells (and its customers pay for) is peace of mind. What do you sell? Is it very valuable to specific groups of potential customers? Test your value proposition. Survey customers to ensure that your product or service provides the value you aim to deliver.
Note: Priority number three is to define and refine your value proposition.
4. Create (and perfect) your business model
Once you understand your value proposition you can determine how you will make money from it. Your business model should describe your sources of revenue and the costs associated with generating revenue. First, what is your unit of transaction?
For a consultant this is an hour of consulting time, for an estate agent it’s the sale of a house, and for a cell-phone company it’s a minute of airtime. Each unit of transaction generates income and incurs a cost. You need to determine and test what you can earn and what it will cost you to deliver on each unit of transaction.
Take note that even if you are not a start-up, this is an important place to start if you are having trouble growing your business. You need to go back to your business model and re-evaluate assumptions you previously made.
Note: Priority number four is to define, test and refine your business model.
5. Solidify systems and processes
Business processes are one of the most critical building blocks for growth. They enable you to replicate your value proposition and customer experience – without your direct involvement.
To create a solid platform for business growth you need to design and implement simple and effective operational processes, capture these processes in a manual, and then implement them across locations. Can technology make your processes more efficient or scalable?
Note: Priority number five is to make your business processes efficient, simple and slick on a small scale, and then roll them out on a large scale.
Year 2: Expand your footprint
During phase two your business focus shifts from the internal to the external. Here the key question becomes: Where else can we replicate our winning formula?
This phase is about radically increasing the volume of the business’s transactions by focusing on new customers or moving into new territories. All for of the below points are priorities within Phase 2.
1. Replicate the model
Seek out opportunities to replicate the business model, value proposition and business processes developed in the first phase. There are a number of ways you can achieve this. First, look for new locations or regions where you could operate. Second, look for new customer segments that you can potentially serve.
Note: Your priorities at this stage are to identify new markets and to develop processes that allow you to quickly replicate your model in those markets.
2. Empowering individuals
It’s critical that you put people you trust in new locations. Remember, businesses are built on people, and new locations not only give trusted employees the space and freedom to excel, but from the word go you have managers who you trust, and who understand the brand.
This phase tends to be a paradox in terms of managing people. On the one hand you want to control them to make sure they effectively replicate your proven (and winning) formula. But, you also need to give them freedom to make decisions and respond to needs in the market where they are operating.
Note: Your priority at this stage is to balance control with freedom for your employees. You can’t control every region, so you need managers who ‘own’ their space.
3. Market, market, market
A key constraint during this phase of growth is the market. You need to create awareness (and desire) of your product and service. Promotion and advertising is one way to do this. Many entrepreneurs promote their product or service too early – they want to create awareness, but they don’t yet have anything to deliver.
This just creates disappointed customers. Save your advertising spend for the second phase – by this stage you have a business model and a value proposition and your processes are right.
Note: You need to be able to effectively deliver on the increased demand you create and ensure good return on your marketing investment.
4. Go where others fear to tread
Real happens when you move into unexplored territory. For example, Vodacom and MTN were able to grow bigger and faster than their counterparts in other countries because they come up with ‘pay as you go’, a solution that allowed them to sell to consumers who didn’t have a credit history.
Kulula.com didn’t focus on trying to steal SAA customers. Instead, it focused on people who traditionally drove instead of travelling by air. They tapped into a large potential customer base and then convinced them that flying was both fun and affordable.
Note: Your priority is to focus on who your potential customers could be - don’t only focus on existing customer groups.
5. Leverage learning across operations
Once you start spreading your operations across multiple markets, it’s likely that pockets of excellence will begin to emerge. Recognise these areas of brilliance and find a way to spread these insights and practices across the group.
Note: More than anything, be willing to learn and share across the organization.
Year 3: Maximise profits and cash flows
You’ve been disciplined and worked hard in phases one and two. Now it’s time to extract the benefit of those phases. You should have a winning business formula which you’ve replicated in multiple markets. Now you need to maximise profits in all your operations. Focus on efficiency, intelligent decision-making and collaboration as you move forward.
1. Focus on efficiency
The downside of an expanded business footprint is that it’s easy to let costs spiral out of control. Many businesses try to counteract this by adding managers and increasing head office costs. This eats into profits and usually doesn’t result in a more efficient system. The organisations that successfully maintain profitable growth don’t fall into this trap.
Note: Guard against extra costs and focus on maximizing the efficiencies of existing operations, bringing costs down and stretching margins.
During the course of running and growing your business, you will need access to both short-term and long-term cash savings to pay salaries, suppliers, or even to save for a future project or large payment. Standard Bank provides a range of flexible Savings and Investment solutions, with competitive interest rates, to help you meet your business’s savings and investment needs.
2. Don’t lose sight of who you are
Successful businesses can lead to a degree of arrogance that says you can just keep taking on more and more and more – that nothing is too much to handle.
Set reasonable targets – the kind that led to your growth.
Don’t suddenly become overly ambitious. Unrelated acquisitions for example can do more harm than good, as can moving into unrelated product categories, which can increase the cost base of a business to an unsustainable level.
Note: The key to successful growth is having the ability to guard against the pride and arrogance that can come with success, and having the discipline to see it through.