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Good Strategy Beats Bad Growth — Every Time

Growth might be one of your key proxies for progress and your entrepreneurial success, but there is such a thing as bad growth — and it should be avoided at all costs.

Kevin Mackenzie

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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!

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 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.

Strategy

What’s The Worst That Can Happen With A Disgruntled Silent Shareholder?

Whether a shareholder brings capital to the business, experience or connections, you need to ensure everyone has the same vision and values.

Kyle Torrington

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While we often hear that it can be bad to have a silent shareholder that does not want to play ball, it is not often that we make enquiries about how the governance of a company can be hindered by a disgruntled shareholder.

Most of us assume that as long as they own more than 50% of their own company, they are entirely in control of all aspects of the company and how it is governed. This is not true: Even if you are a majority shareholder, holding less than 75% of all the shares in your company can still result in headaches if a minority shareholder, holding at least 25% of the company, becomes disgruntled and neither participates in the decisions of the company, nor consents to the decisions being made.

What is set out below highlights, among others, why it is so important to give shares in a company to prospective shareholders over a period of time, rather than from the outset. This allows for shareholders to prove their worth without you potentially placing your company in a position where it could be held at ransom for many years.

Related: 7 Factors To Determine Who Are Your Employees (And Who Aren’t)

The illusion of holding more than 50% of the shareholding in a company

  • Many people assume that by holding more than 50% of the shares in a company they are free to do with the business as they please. This generally only holds true for basic decisions of the shareholders, such as the removal and appointment of directors. The most important decisions of a company are based on special resolutions. A special resolution requires that shareholders, either individually or collectively, holding at least 75% of all the shares in a company, vote in favour of a specific decision.
  • Examples of decisions that require a special resolution include:
    • Amending a company’s Memorandum of Incorporation
    • Approving the issuing of shares or granting of other similar rights
    • Authorising the basis for determining directors’ salaries
    • Disposing of company assets
    • Mergers and acquisitions.

So, what does this mean for you and your company?

  • If you are a start-up looking to raise funds, apart from some exceptions, you will not be able to issue further shares to new shareholders or anyone other than existing shareholders if there is a shareholder that is effectively dead weight.
  • Should you manage to vote a new director to the board, you will not be able to determine the basis on which they are compensated (their salary) without a special resolution.
  • If you intend to merge with another company, you will not be able to pursue this without a special resolution.
  • If you plan to raise money by disposing of or selling most of the assets of your company you will, once again, be prevented from doing so.

Related: Reality Check: You Probably Don’t Own That Work You Outsourced

Accordingly, it is always best when starting a venture to vest your shares over a period of time. This means that, for example, shareholders are only entitled to have their shares allocated to them after a certain period of time to avoid a situation where you have a dead-weight equity shareholder hindering the governing of your company, and requiring possible litigation to remove them.

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Strategy

There’s More To Team Management Than Leadership

When you’re running a business you need to ensure that your employees are on your side, helping you to make profits. Giving them job security, taking them seriously and treating them with respect, will go a long way in enhancing loyalty and productivity.

Henry Sebata

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The staff that work for you determine:

  1. How happy your customers are with your business
  2. The quality of the things that you sell
  3. The costs that you incur to sell your products and services
  4. Your risks – the things that can go wrong and how much it costs you

All of these things determine your profitability and how competitive your business becomes. How do you ensure that everyone is on the same side and helping you to make profits?

At work everyone believes that they are getting something (such as money) and are giving something in return (such as time and effort). They are weighing up in their mind “how much am I giving, how much am I getting in return and is this fair?” If they believe that they are:

  • Giving too much or
  • Getting too little
  • Then this is unfair, and they won’t work well (poor productivity – how much they produce).

Related: Why Innovative Employee Benefits Are Your Competitive Advantage

The manager needs to:

  • Know what people are thinking about what they are giving and getting and
  • Manage the giving or getting side
  • So that people become more productive

In a smaller business you sometimes cannot afford to pay more or provide the sort of benefits (pensions, medical aid, bursaries etc.) that larger firms can and so the staff may be unhappy, not be productive and be on the look-out for something better.

How do you increase happiness without money?

Everyone wants:

  1. Job security – knowing that you will still have a job next year – and that you will get paid on time.
  2. Contributing to the success of the business. If you train staff to have the knowledge and skills to do a better job and you then encourage and support them to do this then they are happier, and you increase profits. If you then share some of these profits with the staff that helped you to make them then everyone wins!
  3. To be taken seriously and treated with respect. If you do this then staff are happier, and they will also treat your customers with respect.
  4. To be part of the team. You can often do this by having a regular briefing on what your plans are and discussing ideas. Because staff are doing the actual work they will often have good ideas and then will be motivated to implement them – it was their idea after all!

Staff leaving you all the time is a can destroy significant value. If you implement the strategy above, you will have happier staff that are more productive and a more profitable business.

Read next: Understanding Your Responsibility As An Employer

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Strategy

Jeff Bezos Reveals 3 Strategies for Amazon’s Success

One of the richest men in the world shared his leadership tips for running a company.

Hayden Field

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“It remains Day 1.” That’s how Jeff Bezos, founder and CEO of Amazon, signed off in his 2018 letter to shareholders. He’s been propagating the “day 1” mantra for decades, and it’s meant as a reminder that Amazon should never stop acting like a start-up – even though the company now boasts more than 560,000 employees and more than 100 million members of Amazon Prime, the company’s paid service for free shipping on select items.

Here are some of the most useful nuggets of wisdom Bezos shared in his letter and during a recent onstage interview:

1. Standards are contagious

Bezos says he believes high standards are teachable rather than intrinsic. “Bring a new person onto a high standards team, and they’ll quickly adapt,” he writes. “The opposite is also true.”

If a company or team operates with low standards, a new employee will often – perhaps even unwittingly – adjust their work ethic accordingly.

He also says that high standards in one area don’t automatically translate to high standards in another – it’s important for people to discover their “blind spots.”

Related: Executive Director Hasnayn Ebrahim’s 5 Rules For Strategic Growth In Your Business

Try making a list of your duties, then ask trusted colleagues to tell you which responsibilities are your greatest strengths. If certain things from the list don’t come up during the conversation, it might be useful to think about how you can up your personal standards in those areas.

2. Set clear, realistic expectations

If you’re looking to raise your standards in a particular area, the first course of action is to outline what quality looks like in that area. The second is to set realistic expectations for yourself – or for your team – regarding how much work it will take to achieve that level of quality.

Exhibit A: You won’t find a single PowerPoint presentation at an Amazon company meeting. Instead, teams write six-page narrative memos to prepare everyone else for the meeting.

Bezos says the quality of the memos vary greatly because writers don’t always recognise the scope of the work required to reach high standards.

Related: Jeff Bezos: 9 Remarkable Choices That Shaped The Richest Man In The World

“They mistakenly believe a high-standards, six-page memo can be written in one or two days or even a few hours, when really it might take a week or more!” Bezos writes.

3. Stay involved with the people you’re serving

Whether you’re selling a product or service, it’s a good idea to make sure you never lose touch when it comes to the people you’re serving – no matter how high up the ladder you climb.

Related: Lichaba Creations Founder Max Lichaba’s Inspiring Journey To Entrepreneurial Success

Bezos says he still reads emails from his public inbox (jeff@amazon.com) as a way to keep his finger on the pulse of what’s happening with Amazon customers.

He says he believes focusing on what customers are saying is much more important for success than focusing on what competitors are doing, and he often compares customer feedback to company data to see where they misalign.

“When the anecdotes and the data disagree,” Bezos said at a recent leadership forum at the George W. Bush Presidential Center, “the anecdotes are usually right.”

This article was originally posted here on Entrepreneur.com.

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