Good Strategy Beats Bad Growth — Every Time

Good Strategy Beats Bad Growth — Every Time

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As an entrepreneur you probably have this inbuilt belief that unless your business is always growing revenue and profits it’s somehow backsliding.

You spend significant time thinking about how you can attract new customers, enter new markets, introduce new products, increase margins, buff up the bottom line, improve your differentiation, and be more innovative, all for the purpose of growing and hopefully increasing the value of your business.

Growth is one of your key proxies for progress and your entrepreneurial success.

While growth is undoubtedly a necessity and medium-term requirement for sustainability, not all growth is good.

Growth that fails to improve your medium-term cash flows and generates returns on investment commensurate with the risk you are taking with your capital is destroying value.

Bad growth is surprisingly pervasive. Many companies are growing revenues yet their net cash positions remain unchanged, margins are flat or declining and returns on capital are way below realistic shareholder expectations.

What’s the alternative? Good strategy!

 

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I would argue that as an entrepreneur one of your most important jobs is to make sure that you’re addressing anything in the present that’s affecting your ability to address these three areas.

1. Stay relevant in your customer’s eyes

When the products and services you offer start becoming less relevant to your customers, your business has a significant strategy problem. No amount of differentiation, customer service and operational excellence helps.

2. Stay differentiated

In a crowded market the margin tends to follow the most differentiated offerings. A relevant product with little difference is left with very few strategic options.

3. Your ability to produce sufficient returns on capital

Your products may be relevant and have differentiation but your underpinning cost structures are robbing you of capital value.

Strategy’s job is to address the challenges to overcome or move you along the path to solving any relevancy, differentiation and value inhibitors. When growth is viewed through the strategy lens it becomes valuable only if it makes your business better.

Related: 4 Silent Business Killers

Good strategy vs. growth aspirations

Actionable steps to integrating good strategy with your growth aspirations.

  • Build a strategic balance sheet. Document core products, customers, profit pools, markets, differentiation and competency systems you use to operate. What is the ’cold light of day‘ state of your business? Good strategy starts here, not with your envisaged future growth position.
  • List all the things that are encumbering your ability to stay relevant, differentiated and value accretive over the next 12 months. Be specific. These can range from customer perceptions or changing buying criteria, lack of skills in key areas, new competitors, inflated cost positions, poorly performing channels, and fragmented systems.
  • Establish proximate and prioritised 12 month targets that, if met, will put your business in a better position. This may mean not trying to take on more customers but rather improving your logistics process channel development and management skills.
  • Create growth targets but view them as directional intent. De-emphasise the financial elements and focus on commercial positions that, if attained, would make your business more relevant, a differential which would significantly up the chance of being more valuable.
  • Think competency systems and how you can develop and expand them. We can only do what we can do which in reality is a big constraint on your strategy options and growth. What competencies, if you heightened, deepened or expanded, would give you more options? If you are struggling to implement within five medium-size customers, how can you successfully sell and implement in three large customers.
  • Focus your efforts on your core business. Figure out how you can expand it outward in small incremental steps, slowly expanding and stressing capabilities. This approach leverages what you have learnt, understand and have foundation skills in.
  • Lastly, manage your targets through small focused projects. Ratchet down on expansive outcomes. Your project teams are usually resourced with staff that have ongoing operational responsibilities. A string of continual small wins in pivotal areas of your business builds momentum and underpinning capacity.
Kevin Mackenzie
Kevin has 19 years of diverse entrepreneurial and consulting experience. He is the founder of Conversations in Growth a boutique consultancy specialising in the understanding of and working with strategy in practice. CIG has engaged multiple management teams, of various sizes and industries. CIG has developed a robust and practical set of thinking tools, frameworks and insights required to engage and operationalise strategy. Kevin founded and manages Floyd's 99 and Stuf.co.za. Kevin guest lectures on growth strategy at Gibs and the CT Graduate School of Business as well as delivering talks to management teams busy with their strategy formation and management process. Contact Kevin here.