In the context of South Africa’s economic progress, securing business success is among the most critical components for national economic growth. The private sector accounts for more than 82% of employment opportunities locally, and if well supported by a conducive regulatory environment, has the potential to create jobs for every unemployed South African.
In our tough economic climate, the pursuit of business sustainability is hard for an all organisations; however, it is especially difficult for the SMEs facing a gaping chasm that regularly includes issues such as capital limitations, lack of management team experience, changing market conditions and an often counter-intuitive regulatory framework. So, how do these company owners cross this divide and break through the proverbial “glass ceiling” to business success?
Dion de Graaff, Chief Operating Officer at The Twinsaver Group, shares his insights on ways in which Small and Medium Enterprises (SME’s) can break down some of their barriers to growth.
Redesigning your strategy
With lack of planning among the key reasons for business failure, a common mistake that some SME’s make is neglecting to clearly define and refine their business strategy.
Doggedly adhering to the same strategy (or same way of approaching customers) that was set at the inception of the business doesn’t cater to the rapidly evolving market needs – the world doesn’t stand still and nor should your business.
Have you reviewed your strategy recently and can you confidently say it is still relevant and optimised to secure sustainable business growth?
Your strategy should clearly define where you want to take the organisation and reflect a proper understanding of your stakeholders; from employees to investors to suppliers. Knowing your world and how it meets the needs of your target audience is critical. You must invest in deepening your insights of your industry, the socio-political environment, risks, returns.
These will inform your strategy refinement and realignment, ensuring a clear map of your business’ future growth journey.
What’s also important is designing your strategy to be robust yet flexible, enabling your business to win in multiple versions of your environment, no matter the changing macro-economic conditions.
When revising your strategy, consider all aspects of the textbook innovation quadrant to determine what the quick wins may be and what will require seriously hard graft. This may seem trite, but it really does help you break down your priorities in the short and long term.
Ask yourself whether you can quite simply, adapt processes or if you should consider modernising a current product/ service offering. It may be that some introspection results in you completely revolutionising your business. A good example of this is Xerox, which started out selling photographic paper and has transformed itself into a leader in the photocopier market.
Remember to get your leadership team and the wider organisation involved as this will help drive buy-in and promote accountability for bringing the strategy to life.
Changing mindsets and upskilling teams
Once you have refined your strategy and secured the necessary buy-in, it doesn’t stop there. The business mindset must shift from exploration (finding new problems to solve) and planning, to execution that solves those identified challenges. As a business owner, if you are unable to make a mental switch, you run the risk of getting lost in permutations and “what ifs”.
Be goal oriented, determine which problems need to be solved, set timelines, focus on the allocation of skills and hold people accountable to drive the business’ objectives.
With 20%-30% of SME’s failing within the first five years, as the captain of the ship, you need to display precision focus but also bear in mind that growth is a team effort.
Attracting the right talent and developing skills should be a non-negotiable in any business environment and is the ‘ticket to the game’. Within a manufacturing context, most of the success happens at shop-floor level and thus, the right technical skills combined with your employees’ ability to adapt in a dynamic environment, are imperative to sharpening your competitive advantage. Equally, development programmes for front-line management and supervisors who are responsible for translating the strategy at shop-floor level, are vital.
Understanding that the resource pot has limitations, to avoid undermining the sustainability of the business, it is worth spending time researching the most efficient ways to develop skills.
This could involve the transfer of learnings within groups in your organisation, hosting an industry expert for a knowledge sharing session and in some instances, free mini-courses on YouTube could suffice.
Ascending the staircase to the top floor
If your goal is to grow exponentially, then your risk appetite needs to match your ambition but there are ways to hedge your bets by making better-informed decisions.
While every business focuses on organic growth (which is often less risky) there are varying levels from adapting a product/ service to investments into new ones – and perhaps even substantial plant and equipment upgrades.
What could set you on a favourable, organic growth path is knowing which aspects to exploit. Understanding your business’ strengths, the opportunities in the market place that are matched to your capabilities and identifying any potential niches, could stand you in good stead.
On the other hand, capital permitting, acquisitive growth (although riskier) is an excellent way of propelling your business forward at speed.
It enables you to bring on board an entity that has a tried and tested value offering – one that could help diversify your product/ service offering and expose you to wider markets (possibly beyond your current geography). However, with sources such as the Harvard Business Review suggesting that the failure rate for mergers and acquisitions sits between 70% and 90%, a comprehensive due diligence is critical.
This ensures that the business you are looking to acquire is a strategic fit, can continue to deliver strong returns, is sustainable and can thus support your growth journey.
With that said, if organic and acquisitive growth are not suitable options, businesses should not discount the value of being acquired.
Often, the acquiring business has the capital, networks, resources and talent to take the business to the top floor hence, the timing of any partnership is key.
In the words of Isaac Newton, “If I have seen further than others, it is by standing upon the shoulders of giants.”
Remember, all that glitters is not gold
As you move forward, do not underestimate the immense value of process learning and importance of understanding the context, yourself. If someone else is giving you the answers, then you haven’t learnt enough. Many opportunities may entice you but do not obsess about the trade-offs as often, all that glitters is not gold.
Regardless of what’s happening in the market place, avoid a knee-jerk reaction. Maintain a long-term view and trust in the buoyancy of your strategy. If you keep it – and your people – front of mind, that is certainly the very best foundation for securing strong and sustainable company growth.
Controlling Profit Margins To Build Greater Organisational Wealth
To build organisational wealth, you need to have strong financial management and control. Are you getting the insights you need to properly control your profit margins?
Organisational wealth is a concept that is based on the premise that businesses can only achieve true wealth once all parts of the organisation are running optimally. It places an emphasis on business systems, internal processes, staff morale, job satisfaction and, of course, financial success.
Having proper control and management of your finances is essential for every growing business. Keeping up with, and staying ahead of, competitors requires more than just a simple accounting system to try control financials. Luckily, modern technology and innovative business management platforms offer practical solutions to give you and your team members up to date information about every part of your business.
This helps businesses better manage cash flow, stock holding, expenses and financial investments for increased control over profit margins as well as continued growth and long-term sustainability.
Here are a few ways in which a good business management system can help you achieve greater profit margins and contribute to building greater organisational wealth.
Comparing budgets vs actual costs
An integrated system allows different departments to quickly and easily share information on expenses budgeted for and actual payments made. This results in streamlined and seamless project planning and management through automatic distribution of information and project amendments based on accurate information.
Managers can get customised financial reports depending on their requirements and set cash flow alerts as well as expense approvals to ensure that budgets are not exceeded.
With the correct systems in place, your small or medium sized business can manage its entire procurement process systematically. Details of suppliers, requests and responses with cost estimates, purchase orders, returns and outstanding orders can all be recorded, centrally maintained and shared between departments. This will allow you to quickly compare suppliers, negotiate better deals and plan your purchases to maintain and improve profit margins.
Matching supply and demand
Optimising procurement to expertly match supply and demand can lead to an increase in your business’s profit margins. For many small to medium sized businesses, managing supply and demand cycles can be a time-consuming and complicated task. The good news is that an integrated business system, such as SAP Business One, allows you to get real-time inventory insights and updates.
It also allows you to manage and set up standard and special pricing to cater to seasonal trends, which are also readily available. Over and above that, an integrated system allows business owners to apply volume, cash, and customer discounts and run reports to track the impact these special offers had on overall profit margins.
Accurate insights to make strategic business decisions
The adage “knowledge is power” is certainly true for businesses – no matter their size. Even in a small business, there is a massive amount of information which can be gathered about your operations within the supply chain and company financials. Having access to accurate information can empower your team members to make more informed decisions.
Providing employees with comprehensive information facilitates strategic decision-making, which can lead to optimised stock holding and procurement, meaningful customer relationship management and more successful marketing campaigns. These benefits can contribute to a sustainable growth in profit margins.
An investment in technology may initially seem costly, but when you invest in the right tools and platforms, you will soon start the process of building your organisational wealth through increased profit margins and excellent financial control.
Should You Scale Or Should You Grow? (The 2 Strategies Are Not the Same)
Bigger is not always better.
For decades, the conventional wisdom in many sectors was that bigger was better. The larger you got, the argument went, the more likely you were to achieve market dominance, supply chain efficiencies and coherencies that you could then carry from developed markets into developing markets. That should lead to happy investors.
Except that, as PwC’s Strategy& discovered, in key sectors like consumer packaged goods there is no direct correlation that can be drawn between being big and achieving higher shareholder returns. That’s a startling conclusion.
There may be a number of reasons for that: Media fragmentation has made it harder and harder to get “big” messages out to a mass audience in the ways that companies could when channels were far more limited; the competitive advantage gap between large companies and smaller participants has closed because small companies have learned how to perform well; and, ironically, innovation has in many ways defeated the need for scale because global networks have changed how big individual companies need to be in order to achieve the presence that they would once have had to grow themselves.
So, how should companies decide whether they need to get bigger? Should they even bother? For many, the decision to remain artisan or to work within defined boundaries is an absolutely valid strategy; it enables them to define what matters to them, and to work within those parameters. But, for those companies that do decide to increase their presence, here are some key factors to consider.
Define your goal, and make decisions from there
The decision as to whether to grow or scale comes down to the definition of success that you have set for yourselves in your strategy.
As Jeremy Melis, UPS’s marketing director for small businesses, told The Balance, “The goal isn’t necessarily the speed of domestic or international growth.The goal is to best position your business to achieve what you’ve defined as success. That could be revenue growth, geographic expansion, a community of loyal customers or a better quality of life for yourself and your employees.”
As in all aspects of strategy, the key concern is why, not what or how. Growth or scaling should be the means, not the end. Your goal should be deciding what you are committed to achieving.
Growth and scaling are different things
A key issue is that growth and expansion are too easily confused. Business coach Mihir Thaker makes the excellent point in an article on the site Business Business Business that, “Growth is all about adding percentages here and there around the business …. Growth is normally a factor of turnover …. Scaling is different.
It’s a process driven approach to growth. No longer is the business concerned with growth for growth’s sake, but only with growth which can be managed.”
So, in seeking to scale a business for example, you are looking to change not just the pace and scope of growth but also the manner in which that acceleration takes place. Growth and scale demand different management styles and therefore different types of leadership, while the pace at which expansion takes place also requires careful judgment.
Expand too fast, and the business risks becoming over-extended; expand too slow and the company risks stalling as others react and/or the business cannot keep pace with demand.
And because scale demands a different set of actions than growth, it follows that it springs from a different mindset. One of the key questions that is asked too seldom is: “Does our company have that mindset?” If not, it may be better, and more profitable, to focus on growth.
To scale the business, first scale the culture
Companies that are serious about scaling their presence must understand that their ability to do so hinges on their ability to shift and coordinate new thinking internally at the same time as they look for opportunities and new customer relationships externally. The temptation is to focus only on the latter – to see a shift in scale as achieving a greater footprint through growth, acquisition and/or diversification.
In point of fact, in order to deliver on that, the business itself must change mindset. As McKinsey has noted, in order to achieve a change of scale at requisite speed, particularly in a digital setting, an organisation today needs to start by realigning its technology infrastructure to handle the new levels of customer interactions that will come.
It will also need to invite new people into the business to make the new scaled process work better, develop new ways to ship faster and more diversely and reset its success metrics so that it can accurately gauge performance against its highest strategic goal and act/react accordingly.
Should you scale?
What questions should you ask yourself to determine if you should scale or grow? We have developed a model that helps companies figure out what they should do in order to meet their objectives. This model, called The LASSO Model, addresses a brand’s optimal expandability.
Nearly all the businesses we spoke to in the course of developing our model commented that the decision to pursue scale was about much more than aspiration. It was a conscious decision to achieve critical weight in the markets that they were focused on because otherwise they risked being unable to achieve their goals.
That’s particularly true in sectors like consumer packaged goods, media and entertainment, where the pursuit of scale can become an end in itself.
Companies that are fueling their growth through venture capital, for example, will sometimes set their sights on being a particular size at which they are deemed to have succeeded in their quest to expand. In media, the goal for many is to make it to the R100-plus million revenue mark because that is deemed to be a benchmark for a scaled media presence.
If that’s the metric that is expected of you, then that will be the key measure you focus on. Many will get stuck at around R50 million or lower, unable to grow a unique audience, achieve consistent engagement, differentiate themselves against others and over multiple platforms, and improve their margins.
Size alone is probably not enough
That leads to the final factor. Strong businesses depend on more than one thing to protect themselves against competitors. We liken this to a Rubik’s Cube. What makes the Cube hard to solve is that the puzzle does not exist in one dimension, but rather in three.
Equally, businesses that have ambitious expansion plans need to look for ways to build in other aspects of competitiveness beyond just size itself. Indeed, wherever possible, they need to use scale to reinforce and strengthen those other elements that make up their value proposition, so that the bigger they become, the more competitive they are.
Many of the companies we spoke to in the course of our research found this the most difficult part of their expansion planning – thinking of scale as a competitive factor that wouldn’t just strengthen their market presence but also raise the barriers to entry for copycats and enable them to profitably leverage and capitalise on what really drew customers to them.
Growth and scaling are different approaches and neither one is “better” than the other. Each has its strengths and weaknesses. Each works better in some sectors than others. Each has its own dynamics and makes its own demands. What’s important for entrepreneurs with ambitious agendas is that they understand why they have chosen one approach over the other, how they have organized their infrastructure and culture to make it happen, and where they will integrate growth or scale with other competitive factors to make it harder for others to emulate their success.
How TomTom Telematics Can Keep Your Business Moving Forward
Successful businesses need to find ways to improve their margins while still delivering excellent and efficient customer service. VDM’s CEO, Deon van der Merwe, explains why this wouldn’t be possible in his business without TomTom Telematics’ solutions.
When TomTom Telematics entered the South African market in 2010, the local team took a deep dive into the different industry verticals they were servicing.
The more they got to know their customers, the more they realised a different solution was needed to address local conditions, and a subscription model was introduced whereby customers didn’t need to invest a large capital outlay into TomTom Telematics’ technology, but would receive the tech and software, including installation, at no extra cost, in exchange for a monthly subscription fee.
This model gives SMEs affordable access to TomTom Telematics’ solutions, but it’s had another benefit as well: As TomTom Telematics introduces new innovations, existing customers can benefit — without the costs associated with replacing all of their existing technology themselves.
An indispensable tool
For a transport and logistics business like VDM Group, which has more than 160 vehicles on the road, this means they have access to incredible new offerings, without needing to replace their TomTom units themselves.
“TomTom plays a critical role in our business,” says Deon van der Merwe, CEO of VDM Group. “It’s an indispensable tool in ensuring quality customer feedback and the management of KPIs for all supply chain stakeholders.
“Earlier this year, TomTom Telematics launched their New WEBFLEET product. We were very satisfied with what we had, and yet they still approached us and offered to replace all our existing units with new tablets, and they’re covering the installation costs,” explains Deon.
“New WEBFLEET is the result of TomTom innovating their product based on customer feedback from around the world, and the local team wanted to ensure we had access to the additional functionality and innovations that had been introduced.”
Seamless integration with your network
According to Deon, the new TomTom PRO 8275 units seamlessly integrate VDM’s fleet scheduling software with information they extract from TomTom, including individual vehicles’ standing time and arrival notifications.
“The software from TomTom is open API, which means that all our various applications can communicate and interact with each other,” he explains. “From a productivity perspective, we no longer need to manually capture any trip information.
In addition, we have every conceivable piece of data available that will assist us to run a leaner, more cost-effective fleet, enabling us to ensure that we are delivering on all our KPIs — particularly with regards to meeting our customers’ needs.”
VDM is a large transport business, but Deon believes the benefits for SMEs are as great, if not more so. “Many SMEs don’t have the back-office support that we do. The ability to capture and use this information without a team of admin specialists at your disposal is a huge competitive advantage for smaller businesses,” he says.
Offering you the competitive edge
VDM offers a specialised logistics service that creates custom-made options for clients. In order to ensure the most optimal and cost-effective solutions, while still ensuring top quality delivery, they need to consider special and complex individual customer requirements, from the point of origin to the point of destination, before finalising a customer-specific solution.
“We take into account a host of factors, including inventory carrying costs, volume requirements, product specific factors and route to market,” explains Deon.
“Road transport significantly impacts total supply chain costs, and if not managed properly, can have a severe impact on the sustainability of any particular channel. We try and manage this risk by continuously improving our service through innovative logistical solutions, the use of advanced technology, vertical integration and a team of passionate and talented experts.
TomTom assists in creating differentiators
“This focus has helped us to develop a market offering that includes dedicated and completely flexible inter-modal solutions, which is a big differentiator for us. TomTom Telematics plays a key role in our total productivity, helping us measure the performance of road transport across our supply chain.”
Deon believes that what you don’t measure you won’t know.
“TomTom provides updated fleet statistics that allow us to constantly benchmark our fleet against pre-defined route surveys and, in so doing, enables massive savings in fuel and total turnaround time.
Communicating via the WEBFLEET platform also helps us save time and creates a formal trail of correspondence with our drivers. I don’t believe it’s possible to successfully run a business like ours without a solution like this.”
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