The major decisions to focus on as you scale up.
Building a high-growth business is like climbing a mountain. There are many people in the world who dream of summiting Mt. Everest or its local equivalents such as Mt Kenya or Kilimanjaro. Those who do, however, don’t just get there. They create a plan for it, then, armed with supplies, a few rules and a great passion for their journey, they head towards the mountain top.
Along the way, they rest at a series of camps; checkpoints that normally mark a significant change in the terrain. Then after a few hours’ rest, it’s back to focusing on the next day and even more important, making adjustments as the mountain conditions dictate. The people who have made these personal journeys up the mountain report that it ultimately boils down to being acutely aware of your surroundings all the time, as you push yourself to take just one more calculated step.
It is the same case for building a high-growth organization. First, you must aim for a big goal. This is guided by the purpose as to why you do what you do and a set of core values that guide how you do that. The goal should be a long-term play, to be achieved in the next 10-25 years.
To manage the long-term goal, the organization’s leadership team then needs to set a series of 3-5 year targets (Checkpoints) divided up into annual goals. These can be further broken down into specific actionable steps that the organization can focus on in the next few weeks and months.
Along the journey, there are a few habits or routines that will make the climb easier. We understand this principle in other areas but fail to apply it in business too. You know that even if you set a goal to lose weight unless you change a few daily and weekly goals, your goal will never be accomplished. For a business leader to be successful too, they need to have a clear vision and the discipline to make that vision a reality.
As most companies move up the growth path, they follow a tragic cycle and the story keeps repeating. First, they start up, then they scale up and eventually they stall out.
Most of these growing firms are bought by the larger corporations and only a few ever grow to become giant industry players themselves.
The key to breaking this growth is:
- Find a way to attract and keep the right people
- Create a strategy that continuously differentiates you in the market
- Drive execution in a flawless manner
- Have enough cash reserves to cushion you in the tough times.
When leading people, one could borrow a leaf from parenting. Ensure you have established a few rules, repeat the same a lot, and make sure you too act consistently with those rules. These will provide a core value system and if used effectively will guide all the systems and relationship decisions in an organization.
As you set your strategy, it’s important to consider this simple definition from one of the reputable business strategists, Gary Hamel. He says for you to pass the real strategy test in business, two things must happen: One, what you are planning to do must really matter to enough customers and secondly, it differentiates you significantly from the competition.
For you to drive execution in your organization, you must implement 3 key habits. These are:
- Set a small number of priorities- the fewer the better
- Gather qualitative and quantitative data daily and review it weekly to guide your decisions
- Establish a daily, weekly, monthly, quarterly, and annual rhythm meeting that keeps all the involved parties in the loop.
When managing Cash, the most important thing to ensure is that you do not run out of it. This means paying attention to how each decision affects your cash flow even as you focus on the bottom line and profitability.
As a company grows, it gets to a point where the organization has outgrown some of the business relationships it had. Evaluating the key relationships involves making tough decisions on who to keep and who to cut loose.
The key question when evaluating the people in your organization is: Do you have the right people doing the right things? It’s also important to ask: Are all the stakeholders; the customers, employees and shareholders happily engaged in the business and given a chance would you ‘rehire’ all of them? Are you satisfied with your advisors, from lawyers to consultants, from accountants to coaches? Are they the best fit for your organization at its size and with its future plans?
As a founder, an honest evaluation begins with your own priorities and relationship goals, then it moves to the other leaders, being clear on who is accountable for each process and function that drives the organization.
The proverbial bottleneck is always at the top of the bottom and Jim Collins, in his book Good to Great: Why Some Companies Make the Leap… And other Don’t, argues that to streamline things, you need to get the right butts on the right seats especially at the top of the organization. These people must fit your culture and pass two tests:
- They do what needs doing, without being managed.
- They regularly wow the team with their output and insight.
More on People in the next part of this series.
First, it’s important to redefine the 70-year-old business term- strategic planning – and see it in two distinctly different activities: Strategic Thinking and Execution Planning.
Strategic thinking involves a weekly meeting for a few senior leaders. This needs to be a separate meeting from the usual executive team meeting. The Leaders should try to steer away from any operational issues and be focused on the broader vision of where the company needs to go and how to get there.
Executive planning, on the other hand, needs to involve a larger team so as to implement the broader strategy. This is where the specific annual and quarterly goals and priorities, KPIs and expected outcomes are set with the middle managers’ and some of the frontline workers’ involvement. Their participation in this process is key as it creates a better buy-in.
The key questions to ask as you develop a differentiating strategy is: Who, What, When, Where, How, Why and Should/Shouldn’t. The process should follow a simple cycle of Thinking- Planning- Acting -Learning.
The firms’ strategy should drive sustainable growth in revenue and gross and margins and the top leaders should easily state in a simple way.
More on Strategy in the fourth part of this series.
The key question to ask in this area is: Are all the business processes running drama- free and are they driving industry-leading profitability.?
If you are not sure if your execution is flawless, you could check if these three things are happening in your organization:
- Does it seem like everyone is working more hours or spending too much time fixing things that should have been done right the first time?
- Is there needless drama in the business eg. someone missed a meeting, another order shipped out late, the invoices were printed out wrongly etc?
- Is the company generating less than three times the industry average profitability?
If you answer YES to any of them, then there is definitely a need to look into how a few processes can be fixed.
Many companies get away with poor execution if they have an amazing strategy and have highly dedicated people working 80 hour weeks to cover up all the sloppiness. However, it’s important to understand that you’re wasting a lot of time and profitability this way and eventually, you’ll burn out both cash and the people working in the organization.
More on Execution in the fifth part of this series.
The growth of a company sucks cash. And nothing brings more stress to a CEO and their team than being short on cash. In their best-seller book, Great By Choice: Uncertainty, Chaos and Luck- Why Some Thrive Despite Them All, Authors Jim Collins and Morten T. Hansen found that most successful companies held about 3-10 times more cash reserves than the average in their industries, some from as early as when they started.
However, many leaders in growth companies pay more attention to profit and revenue than they do to cash when structuring deals with customers, suppliers, employees or even banks or investors. When they get their monthly financial statement, the cash flow statement is either ignored or nonexistent.
The quickest and easiest action you can take is to have the CFO give you a modified cash flow statement daily that details the cash that came in during the last 24 hrs, the cash that flowed out and an idea of the cash projections for the next 30-90 days. This will ensure that cash is at the top of your mind and will give you a feel for how that cash is flowing through the business.
It is also important to understand the Cash Conversion Cycle (CCC). This defines how long it takes after you have spent a Shilling/dollar/ euro/ yen on utilities, rent, inventory, payroll, marketing etc, for the same to make its way through the business and then back into your pocket. Neil C. Churchill and John W. Mullins have a good piece on this in the Harvard Business Review titled, “How fast can your Company Afford to Grow?”
More on Cash in the sixth part of this series.
In the next article in this series, We’ll dive further into finding out if you have the right people doing the right things and how to go about leading them.