Over the years entrepreneurship research has been unclear about indentifying the factors that contribute to success when founding and growing a new venture. Researchers have largely struggled to find the magic recipe for entrepreneurial success. However, the one thing that has emerged as a robust predictor of entrepreneurial survival and success, is a network of relationships.
How networks promote success
Research has clearly highlighted that both personal and organisational networks contribute to the success and growth of a new venture in at least five different ways:
- Networks influence the breadth of ideas and technologies that a person is exposed to as they search for a new business idea.
- Relationships provide people with links to funders of new ventures.
- People in your network often open doors to cheap sources of supply and are very often the link to hiring talented employees.
- The first few sales of most entrepreneurs will be to people they already know.
- A strong network of relationships provides more flexibility in dealing with crises and contingencies when they arise.
Getting by with few resources
To make this a little more real, it is valuable to reflect on aspects of my own entrepreneurial journey; I discovered the value of relationships as I walked this road. In 2003 I decided I wanted to be master of my own destiny and escape the trappings of the corporate world – I wanted to launch a new business.
I entered the financial training industry because that is what I had been doing internally at my previous employer and I was familiar with the latest ideas, technology and concepts in corporate training. My business partner and I developed a suite of offerings and products to fill market needs that we learned about by talking to colleagues and associates in the corporate world. As we built the business we drew on a broad base of relationships to help us get up and running. A friend I had helped set up a Web design company three years earlier did all our Web and IT work free of charge. A student who had been in one of our classes did all the graphic design and we drew on family and friends to test all our products, often around the kitchen table with a bottle of wine and a take away pizza on hand.
Our first client was our previous employer; our former boss hired us to deliver some of our products in the organisation where we had worked. Our second client was introduced to us by a university friend of my business partner; he commissioned us to create a financial literacy board game for the company where he worked. Our third client came from a referral; one of our previous colleagues referred us to her husband who owned a company that had a need for training. We did not take on any outside capital; the capital to fund our first year of operations came from the sales revenue from our first three clients. As I reflect on the diary that I kept of my first 12 months in business I am amazed at how we managed to do so much with so little and it was largely because we were drawing on the people we knew to help us keep the business afloat. The bottom line is that a network of relationships is a very valuable resource when starting and growing a business. In this article we will explore what kinds of relationships are valuable in an entrepreneurial context and how to build an entrepreneurial network.
Types of relationships
It is important to recognise that not all business relationships are the same and that different kinds of relationships serve different purposes in developing an entrepreneurial venture. One way to distinguish between diverse relationships is the strength of the tie. Strong ties are deep relationships that develop over an extended period and usually take effort and energy to maintain. Weak ties are looser relationships that form as a result of relatively brief interactions with others. Both weak and strong ties serve useful purposes in an entrepreneurial venture but their purpose is distinctly different. They each take different amounts of energy and effort to maintain and entrepreneurs need to maintain a balance between strong and weak ties to give their venture the best chance of success.
Strong ties are important for three reasons:
- Bouncing ideas for new products, services or business strategies.
- Mentoring and support.
- Information sharing.
Firstly, entrepreneurship is about creating something new and doing things differently. Developing new products or services is an uncertain activity. When engaging in an uncertain activity we need people we can trust with whom we can share our ideas and get honest feedback. Such a discussion is best had with someone with whom you share a good relationship – a strong tie.
Secondly, an entrepreneurial journey is a tough and lonely road and one reason that entrepreneurs fail is because they give up. They become drained and disheartened when things don’t go well or they take it personally when people don’t buy their products. It is at times like these that you need to get support and advice from someone you can trust. Thirdly, in an entrepreneurial venture, information is often a source of competitive advantage. If an entrepreneur hears about a request for tender or a new piece of technology before anyone else then they can quickly position their venture to take advantage of that situation. Really valuable information very often flows only through close relationships. Therefore strong ties are regularly a source of the most valuable incoming information in an entrepreneurial venture. Because of the depth of relationships in strong ties, they take time and effort to maintain and require reciprocation – doing for others what they do for you. It is often challenging to maintain many strong ties and successful entrepreneurs often supplement a few deep relationships with a broad base of loose relationships, or weak ties.
Weak ties extend the reach of an entrepreneur across a much broader base of people and provide valuable information flows for a lot less effort than strong ties require.
Weak ties, or loose connections as they are often called, serve three clear purposes:
- They are often the source of information about a new sales opportunity.
- They provide connections to potential employees and service providers.
- They serve as a source of reputation in the market place.
Because entrepreneurial firms often work from a very low resources base, they cannot hire expensive sales people, invest in big media and marketing campaigns or use the services of a professional recruitment firm. They depend heavily on a network of loose connections to keep the business alive with word of mouth marketing and referrals, accessing free or low cost suppliers and hiring friends, or friends of friends. The key to effectively using a network of relationships as a valuable resource in developing a new business is balance. You need to maintain a few strong ties to serve as a critical support system and source of information when required, while broadening your reach with a vast number of weak ties to garner the benefits of information, referrals and leads.
Steps to build your own strong networks
If you become sold on the idea that it is valuable for you to foster a broad set of relationships as you build and grow your business, what does this mean practically? Fostering relationships is not rocket science. It requires the application of a few simple practices. Although these practices may seem obvious and uninteresting, they are incredibly powerful. Disciplined application of these practices can create huge leverage for a business owner by extracting big results for relatively little effort.
Practice #1: Be honest and genuine
Valuable relationships are based on trust. Trust is forged when people are honest with each other. People you interact with will very quickly assess whether you are being fully honest with them and this will set the tone and the parameters for the rest of the relationship. If they decide early that you are dishonest or untrustworthy, you are doomed. That relationship is unlikely to be of any value in the future. If others trust you, you will probably be allowed to forge a relationship with them that may serve you well in future.
Practice #2: Ask and listen
Relationships are built around connecting points. Connecting points emerge as a result of disclosure. To find connecting points with others you should ask open-ended questions that allow people to disclose something about themselves or their business. Then listen carefully to the answers they provide. Build on their answers as you follow up with another open-ended question and before you realise it you will be involved in a valuable conversation that can forge the foundation of a new connection.
Practice #3: Share your story
Stories are one of the most powerful mechanisms for enabling others to remember key ideas and insights. This is why The Bible is filled with passages phrased as stories and why so many people can remember the key message from the fable “The Tortoise and the Hare”. Our minds are more able to latch onto ideas that are shared within a story and if you want people to remember who you are and what you do, tell them a story. Spend a bit of time crafting your personal and business history into an interesting and concise story. The next time someone asks you what you do, tell them your story and you will be blown away by how much more they remember. The more you tell your story, the better you will become at telling it concisely and effectively and the more people will connect with you and remember you.
Practice #4: Follow up
Research has shown that a single follow up from an initial interaction can significantly change the trajectory of a relationship between two peple. Dropping someone an email or a call or sending them a thank you note after that first engagement changes peoples’ perception of the relationship and significantly increases the likelihood that the parties will interact again at a future date. If you want to benefit from the interactions you have with others, get in the habit of following up with them.
Practice #5: Connect others
The value of a network moves to a new level when you are able to effectively connect others in your network with each other. People will begin to truly value their relationship with you if you are able to connect them with others in a meaningful and valuable way. To do this effectively you need to understand the needs and abilities of both parties and have a trusting relationship with both. As you begin connecting people in your network with one another, they will begin connecting you with others in their network. Over time your network of relationships will begin to multiply many times over.
Practice #6: Maintain an up-to-date contact book
This piece of advice might seem absolutely obvious but I am amazed at how many business people don’t have all their contacts in one easily accessible place. A contact will only create value for your business if you can quickly call on that person at the time that you need them. Creating value from contacts is often about timing and if you cannot find a person’s contact details to call on them at the right time, the window of opportunity might pass you by. These days one can easily use technology to maintain a database of contacts and that database, if well populated, will undoubtedly serve as one of your business’s most valuable resources.
Invest in relationship assets
Relationship building in business is not a new recipe for success; it’s not a fad or some amazing new discovery. It is one of the oldest and most fundamental principles for business success. Yet it is more relevant today than it has ever been. In a world where we have access to more information than we could ever imagine and in which people are often fickle and fast, having a broad but balanced network of people you can call on and trust will be one of your business’s most critical assets. If you are serious about business then it is worth getting serious about your business relationships.
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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