According to UK Government statistics less than 20% of all companies achieve sustainable growth. Why is the number so low? What stops the majority of companies achieving growth?
Roderic Michelson is a company growth expert from Aralex Consulting. In his experience, working with both large corporates and smaller SME’s, there are five key barriers to growth. By ignoring these key areas you can be sure you will be in the 80% that fail to grow;
1. Unclear Value Proposition.
Is your product solving a real customer problem – technical or operational? Or is it just a nice to have? To achieve growth it must be clear what problem you are solving. Having determined exactly where you are bringing value to your customers, then it may be necessary to fine tune the features or the price. However without a clear understanding of why your customers would want your product or service, tweaking is irrelevant.
“These sound very basic, but in my experience this area is the main reason a company fails to grow, and by tackling it you can make a huge difference in a very short time-frame.” says Roderic.
2. Owner and management team capabilities.
People start companies for different reasons. However, all entrepreneurs share common psychological traits: a desire for independence and getting things done, persistence, fortitude and optimism. These are great assets but there’s another side of the coin: inability to delegate, competitiveness and unwillingness to listen, also come with the package.
Beyond a certain size the family atmosphere of a start-up company needs to give way to team leaders, stronger delegation and clear processes.
When a company hits the milestone sizes of 6, 20 and 50-70 people, it is up to the entrepreneur to decide whether they want to grow further or stay in the “lifestyle business” size. A positive decision to grow requires change and is usually challenging for both the original team and the lead entrepreneurs. Quite often the initial teams are unfit to take the company further.
Failure to make a clear decision can leave a company floundering with a lack of vision and no clear direction. And failure to recognise when help is needed can consign a healthy company to its death bed.
We live in an over-marketed world. So marketing must not be left to chance. Start with the basics. Who are your customers and why are they buying from you? What is your Unique Selling Proposition? Which media are you using to reach out to them? Most companies are using 1-2 channels only. But there is gold to be mined in using multiple-media approaches and fine-tuning your message that will be of interest to your ideal customers.
4. Insufficient funding.
Under-funding is not just a significant contributor to business failure, it’s also a barrier to growth. Even if your business does well, there’s a need to invest in growth: more marketing, more stock, more materials, more salespeople … the list goes on.
And with growth comes the cash-flow-crunch problem as you have to pay your suppliers before your customer pays you.
So how do you work the Cash Conversion Cycle? First you need to calculate the actual time between paying your suppliers for inventory and stock and the time you get paid from your clients. Even an average number of days will be eye-opening. This will show you the number of days your working capital is tied up and unavailable to invest further.
If you do only one thing then let it be a vigorous focus on shortening your cash cycle. This will release cash so you can invest in growth.
5. Poor Sales Management.
An essential issue that entrepreneurs and managers need to track is the sales pipeline. Is there enough new business? Will it come through in a month, three or six months? This should be done in a very systematic way.
It is easier to do in a smaller company where things are more open. As the company grows decision-makers become more removed from sales and visibility deteriorates sharply.
Working on pipeline visibility and planning can not be emphasised strongly enough. It is a vital activity not only for growth but survival as well. The longer the sales cycle, the more critical it becomes. Ignore this aspect at your peril. Without a clear picture of your pipeline your growth will be sporadic at best and in the worst case – non existent.
The good news, just by tackling one of these five barriers you can make a significant difference in the short term, but to achieve long-term, sustainable growth, all five areas need to be tackled and diligently maintained.