Every business was once a start-up with only a handful of customers. Whilst some businesses succeed and others will fail, success is often measured in terms of size and scale. There are those companies that will plateau, whilst others will grow into large, profitable organisations. In this article we consider some of the factors that enable businesses to grow, rather than simply tread water.
There are a number of ways in which companies can rapidly increase their top line and profitability, with many examples of how this has been successfully executed. Most businesses can implement certain strategies for growth, but only some can do so in order to scale-up. There is an important distinction between growing a business and scaling a business.
Growth versus scale
Growth involves increasing revenue broadly in line with costs (for example, through growing the number of customers to whom you sell more products or where you hire more staff in order to increase services provided). In contrast, scaling a business involves adding revenue at a rapid rate whilst incrementally also adding costs, whereby both top line and margin grows over time (customers are added through little incremental resource).
The ultimate goal of growing or scaling a business is to increase earnings. The objectives of business owners will often dictate how they go about doing this. For those who run lifestyle businesses, they will generally seek to implement growth strategies. For those looking for an exit, they will, in addition, look to create and build a scalable business model which not only looks to achieve rapid growth but also demonstrates to potential buyers (in particular, to private equity buyers) that there are future opportunities to scale-up.
There are certain sectors that are more conducive to being scalable, with typical features being predictable, recurring revenues, a subscription-based model and high customer retention rates. Growth is driven by expenditure that is focussed on sales & marketing, low cost & highly productive labour, with little to no investment in infrastructure.
However, technology is playing and will continue to play a critical part in transforming business models in many sectors that were, perhaps, not traditionally seen as scalable, where technology is significantly reducing labour and infrastructure costs. The increasing shift to digital, online and cloud based business models has driven and will continue to drive this, artificial intelligence and big data are widely expected to provide new opportunities going forward.
Growing your business can be done in many different ways and will to some degree depend on the nature of the company in question.
Although reputation and word of mouth can be powerful in gaining new customers (particularly through showcasing customer satisfaction), focussed and targeted sales and marketing activities should give companies greater reach. Geographic expansion either nationally or into new international markets is often a well-trodden path for businesses operating in many sectors. Businesses can also look to grow through expanding existing product or service lines or vertical integration up or down the supply chain.
This can all be achieved either organically or through acquisition. Carefully thought out and focused mergers and/or acquisitions with an appropriate level of due diligence can be an extremely powerful way to achieve rapid growth and create value.
Whatever growth strategies are implemented, a business should formulate and clearly communicate its values, policies, objectives and strategy to all employees and management such that they buy-in and in turn can directly contribute.
Building the foundations for growth
In is important that companies are well-prepared for growth and able to cope with rapidly increased demand from customers and clients. Bad processes will be amplified as you start to scale or grow and will adversely impact upon the business (for example customer service or miscommunication between staff).
By being ready and fully prepared for growth, there are certain things which have to be in place, otherwise there is a risk that you will lose control of critical processes. These are things which are very difficult to fix retrospectively once problems present themselves.
Having appropriate management in place is key. This will comprise a team of people to whom you can increasingly delegate day-to-day matters, to help you focus on ‘big picture’ matters and enable you to concentrate on growing the business. Such people can also prove to be invaluable by doing the things a business owner is weak at. Motivating and offering appropriate incentive schemes is something to think about in order to retain top talent. Finally, obtaining external advice from consultants and advisers, where you don’t have the expertise yourself, will usually result in the optimal solution and enable a business owner to focus on growing the business.
Strong and robust systems and controls which, ideally, automate processes should be in place to enable a business to handle rapidly increasing volume of transactions. Not only does this include key sales and purchasing processes and IT infrastructure, but also financial and accounting systems and software. This will enable sound cash flow management and good management information reporting on a timely basis. With the host of cloud based software solutions and applications available, this is something that is becoming easier to achieve.
Both planning for growth and implementing growth strategies require funding. Whilst some businesses will have a working capital cycle such that cash generation can fund growth, others will need funding or risk a working capital shortfall. Invoice discounting facilities often help with this. When it comes to scaling a business, growth capital may be required either through bank funding or other alternative debt providers, or through private equity. With the right funder, they will also be able to draw on their experience to help grow and scale in order for founders to fulfil their growth ambitions.