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Performance & Growth

Should I Stay Or Should I Grow?

Most businesses reach a stage in their lifecycles where important decisions have to be taken about how to maintain future growth. Learn from the experience of others to identify the right strategies for sustaining growth.

Greg Fisher

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Growth is the lifeblood of any business. A leader’s job is to take that business to bigger and better places. The dilemma lies in how to get there. You’re often faced with a simple choice: keep growing the existing products or services or expand into new arenas of business. This decision has been at the core of strategy for many years and continues to be a critical question for any serious business manager.

To make an effective decision about whether to keep growing your core or expand into new areas, it is useful to understand the phases of a business lifecycle and to appreciate the nature of the managerial challenges in each phase.

It is also important to be able to pinpoint the phase of the cycle your business is in and to know what your options are for growing it into the next phase.

The Phases of the Business Lifecycle

For many years academics and consultants have recognised that a business moves through different phases of development as it evolves and grows. The sequence and nature of each stage of development tends to be fairly predictable and each is characterised by specific organisational activities, structures and challenges. The movement through different phases of development is commonly referred to as a business lifecycle. As a person moves from infancy into childhood, then into adolescence and adulthood before approaching old age, so a business also moves through different phases of development as it starts up, grows and matures.

Stage 1 Stage 2 Stage 3
Initiation Growth (early and later growth) Maturity
Organisational age and size Young and small Growing larger Large and older
Type of structure No formal structure Centralised formal

Functional

Decentralised formal

Matrix

Reward system Personal

Subjective

Systematic

Impersonal

Impersonal

Formal

Objective

Communication and planning Informal

Face-to-face

Little planning

Becoming formalised

Budgets

Formal

Long-term plans

Rules and regulations

Method of decision making Individual judgement

Entrepreneurial

Professional

Analytical

Professional

Bargaining

Make up of top management staff Generalists Specialists Strategists

Planners

Organisational growth rate Inconsistent but improving Rapid positive growth Growth slowing or stagnant

Key management challenges in different phases of a business lifecycle

The key issues and challenges vary for managers leading businesses in different stages of the lifecycle. Managers in the initiation phase face the challenge of creating a new product or service, then getting that product or service to market and having people test that product or service so that consistent market demand is created.

They often operate under high levels of uncertainty and ambiguity and sometimes need to make snap decisions with inadequate information. During this phase of the lifecycle the business generates very little revenue and managers need to rely on external capital or bootstrapping to survive. Operating in a resource constrained environment means that people often need to take on multiple roles and fulfil a diverse set of functions within the business.

Managers of a business in the early growth phase of development face the challenge of establishing an infrastructure within the business to serve a growing customer base. As the product or service becomes more popular, the leader in the organisation needs to establish systems and processes to consistently deliver a high-quality offering. In this phase, managers need to manage cash carefully because a growing business tends to absorb more money than it generates.

Managers in the later growth phase of a business face the challenge of keeping the growth of the business going. It is difficult for a manager to know exactly how big a business can become (i.e. when will the market become saturated with the company’s product or service?). Managers therefore face the critical decision of whether to invest further in selling the current product or service to the existing market, expand into new markets with the existing product or service, or consider offering new products or services that leverage the skills and competencies developed in the business.

Managers of a business in the mature phase of the lifecycle face the challenge of reinvention. The phase that follows maturity is decline, during which the demand for a product or service drops off rapidly. In order to avoid falling prey to decline, a manager leading a business in the mature phase needs to look for new streams of revenue and new opportunities that will launch the business onto a new growth curve.

This creates a challenge of balance. Managers in mature operations cannot neglect the existing lines of business; they need to continue to deliver these offerings as they are a source of cash for a mature operation. But while they maximise returns on existing offerings they need to invest in new products or new markets that will create growth in the future.

Analysing where your business is in the lifecycle

This is key to using the business lifecycle concept as a strategic tool. By recognising which phase of the lifecycle your business falls into you will be able to make sense of your current challenges and predict some of the issues that are likely to be problematic as you keep striving for growth in the business. In addition to dealing with challenges, the business lifecycle can be used as a tool to assist a management team in making a decision about whether to keep growing their core or expand into new business.

There are a number of clues that can help you identify where your business is in its lifecycle. The most obvious set of clues relate to sales growth and time. If your business is relatively young and sales growth is slow, it is likely that you are in the early initiation stage. As you sense sales are beginning to pick up and new customers are emerging to buy your product or service, it is likely that you are moving into the later stages of the initiation. However, in the initiation phase growth may be irregular and sporadic, meaning that you might have a few months of decent growth followed by a month or two of flat or declining sales. As you move into the early growth phase of the business lifecycle, sales growth will become more consistent. You can generally expect ongoing increases of at least 5% month-on-month in this phase of the business lifecycle. During the early growth phase you are also likely to feel more and more removed from your customer.

As your customer base expands, it is increasingly difficult to feel close to the customer and the focus of the business tends to shift from external to internal as you struggle to deliver on the increased demand. There will come a time when sales growth is not achieved as easily as it once was. You are likely to invest in increased marketing and promotional activities and although these activities yield positive results, it will start to cost more to sustain the growth of the business. At this stage you will begin to get a sense that you are working harder and harder for the growth you are generating. You are moving into the later growth stage of the business.

When growth begins to slow it is a sure sign that the business lifecycle is reaching maturity. It is not always easy to recognise when the business is reaching a stage of true maturity as many other factors can cause growth to slow down temporarily. One of the critical issues for a manager is to assess when true maturity in a market is being reached versus a temporary slowdown caused by an external factor. The mature stage hits when, despite what you do in the existing market, sales don’t grow significantly.

Options for growth

The growth options and strategic focus for a management team will be different depending on the stage of the business lifecycle. In the initiation phase, the focus should be on the core activity of the enterprise and on looking for ways to adapt and tweak the business model and customer offering around that core. Many entrepreneurs are tempted by the multitude of opportunities that appear to cross their paths in this phase of the business. It is foolish to go after any of these opportunities unless they are core to what you set out to do. Being successful as an entrepreneur takes hard work, dedication and focus and it is tough to be dedicated and focused if you are attending to too many things at once. Therefore, the strategic focus in the initiation phase should be to attend to and adapt around the core.

In the early growth phase, the focus of the organisation tends to shift towards delivery. Because sales are growing significantly, it is challenging for the internal operations to keep up. Managers therefore need to focus on building and refining systems so that the growth can continue without service being compromised.

In the later growth phase, the leaders of the organisation should begin to explore options for taking the existing product or service to new markets or diversifying into new lines of business that can be sold to the existing market. Factors that should be considered in deciding whether to take existing products or services to new markets or to diversify include the following:

1. Regulatory or contractual factors. Regulation, legislation or contractual agreements may prevent you from taking your business into new markets. For example, you may have licensed a product for a particular region and be prohibited by the licence agreement from taking the product to new territories. Another practical example relates to many of South Africa’s most successful enterprises, such as SAB, Barloworld and Anglo American; they were restricted from moving into new overseas territories in the apartheid years due to sanctions. As a result, they had no choice but to diversify to grow their businesses.

2. Core competence. Core competence is an activity that a company can do really well. It is usually developed through years of experience in a particular area. If a business is able to clearly recognise its areas of core competence, it may use that as a basis for deciding whether to diversify in existing markets or to move its existing products or services into new markets. This is demonstrated in the South African banking sector. FirstRand Bank’s core competence is in growing and managing a diverse range of innovative organisations each with its own brand and unique culture. The bank has chosen to focus on diversifying into new services in the local market, for example, Outsurance, Momentum, Discovery, Futurefin and Standard Bank, on the other hand, recognise their core competence as managing risk in less stable emerging market economies. They have chosen to take their existing brands and businesses into new markets such as Turkey, Russia and Argentina.

3. Networks and relationships. Networks and relationships are a source of strategic opportunity. Therefore, it is often wise for a business to look for growth in areas where it has developed relationships or strong networks that could open doors and facilitate linkages. This could work in either direction. A business that has strong relationships with companies or people in the same industry in a new market may be better off growing its business in that market, whereas a business with a diverse set of good relationships across multiple industries in the existing market may be better off staying in the existing market and diversifying its business.

4. Market factors. Market gaps and market need could prove to be a key factor in deciding whether to expand into new markets or diversify in existing markets. If there is an unclear need or desire for the business’s product or service in potential new markets, managers may be better off taking a decision to diversify. Conversely, strong market need in new markets creates an incentive to expand into new markets. For example, MTN’s recognition of a deep need for wireless telephony in Africa created an incentive for the company to take its existing offering into new African markets.

Avoiding Errors In Driving Growth

If one understands the concept of a business lifecycle, it is possible to avoid some of the typical errors that entrepreneurs and business managers make in trying to grow a business.

Such errors include the following:

1. Being distracted in the initiation phase.

The initiation phase is a critical time for a venture. It requires focus and discipline to get a new product or service to market. Because entrepreneurs are endowed with freedom and choice they may get distracted by a multitude of opportunities around them in the initiation phase and therefore fail to deliver the core product or service they set out to create.

2. Expecting the growth phase to continue into perpetuity.

The growth phase is a happy time in a business. It is exciting and fun when the market buys your product or service in large quantities. Yet there is the risk of creating an illusion that the growth will last forever and failing to explore opportunities for market or product diversification in the later stages of the growth phase.

3. Not investing wisely in new opportunities as the existing business reaches maturity.

In the maturity phase of the business lifecycle, a business typically generates healthy amounts of cash. No further investments are required to keep the existing business running and the business has a high, but flat volume of sales. It is tempting just to keep generating cash in this phase and not worry about investing in the future.

Yet it is important to use much of that cash to develop new products or new markets so that the business has a growth curve in the future. The challenge for managers is to stay disciplined and focused in the early phases of a business’s lifecycle and to actively look for expansion opportunities in new markets or through developing new products or services in the later phases of the business lifecycle.

Greg Fisher, PhD, is an Assistant Professor in the Management & Entrepreneurship Department at the Kelley School of Business, Indiana University. He teaches courses on Strategy, Entrepreneurship, and Turnaround Management. He has a PhD in Strategy and Entrepreneurship from the Foster School of Business at the University of Washington in Seattle and an MBA from the Gordon Institute of Business Science (GIBS). He is also a visiting lecturer at GIBS.

Performance & Growth

Your Organisation’s Values Must Generate Value – Otherwise Why Have Them?

Your values have to be the foundation of your organisation’s present AND its future if you are going to ensure sustainable value for your stakeholders.

Brian Eagar

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In the modern world of business, where social media compels organisations to tell the truth, transparency and ethics have become essential. Consumers no longer only care about getting value for money, but also about what your company values and how that transpires in what you offer.

Defining a set of values that describes your organisation’s heart, i.e. your organisational culture, is immensely personal and, if lived, immensely powerful. Successful leaders realise that an important factor in building brand loyalty is getting their organisations to wear their proverbial hearts on their sleeves and to authentically honour it in the way they do business. Sadly, many organisations define their values as a tick-box exercise that serves as mere decorations for their website.

Just think of infamous examples like KPMG, SAP and Steinhoff as well as more recent culprits like Bain and Gartner: Besides the millions many of them had to pay back, their severely tarnished brands are still costing them dearly. It is clear that if the values you proclaim to espouse are not overt in your client-facing staff and the way you do business; this lack of integrity will eventually catch up with you. As what happened with KPMG, this not only leaves you with less clients, but with a diminished team too. High potential employees do not want to be associated with leaders who don’t honour the organisation’s values.

Related: Here’s How To Value Your Business

For the organisation’s values to truly become visible in how they engage and do business, it has to start with the leaders and their message. Those we lead must see it in our example on a daily basis. Our organisation’s values serve as a moral compass, but if the leaders responsible for steering the ship do not abide by this compass, our crew can’t get us to where we want to go. Our team members either follow us, become disengaged or abandon ship. They will not make an effort to uphold the values within a business where the leaders themselves disown it.

As a business, we make a certain promise or commitment to our clients. However, if our values do not underpin this promise and if we, as the leaders, don’t role-model our values to achieve this, it remains an empty promise. Therefore, it is important to keep the following aspects in mind when selecting or re-viewing your organisation’s values:

  • Before defining your values, you should ideally define what kind of culture you want your values to underpin. Consider what is important to you and what is important to your customers: Is your organisation’s culture customer-centric, as it aims to exceed customer expectations, or quality-centric because of its strong focus on excellence? Perhaps your organisational culture leans more toward being cost-centric, as providing real value for money is important to you. A service orientated organisational culture, on the other hand, implies that providing your customers with the best possible experience is top of mind for you. Your organisation’s culture could be one of the above, or your culture could consist of a bit of an eclectic mix.
  • Once you have defined the above, choose values that will help your desired culture become a reality and that your team members and customers will buy into. Again, ensure that it captures the heart of your organisation.
  • Values are personal and we all interpret them in our own way. Although we don’t want to promote a homogeneous culture, we do have to communicate what we mean by our values. Therefore, the next step is to craft a set of behaviours that describe how the individuals in your organisation will live these values. Again, it is important to emphasise that the example must be set by the leaders but that it is the responsibility of every team member to role-model these behaviours.
  • Finally, your organisation’s values must come alive and inspire, as they are intended to, and it is your responsibility as a leader to make this happen. Ask your team and your customers to tell you how they will feel if these values are lived authentically, and then measure the organisation against their feedback. If your team and your customers do not experience your values in this way on a daily basis, chances are your values are probably still dormant.

Related: Harnessing Value-Based Delivery To Create Customer-Centric Solutions

It is the responsibility off all leaders to inspire hope and trust in the organisation’s future in good times as well as bad times. To keep your team engaged, you constantly have to paint an emotive picture of what the future looks like for your organisation. If you connect this picture to your values and role-model them as a leader, they become a powerful tool for fostering the emotions and engagement that will help your team members buy into your vision.

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Performance & Growth

How You Can Achieve Growth Through Access To Markets

If your goal is to scale your business, you need to increase your sales and access to markets. We found the best way to do that was through key strategic partners whose existing clients were our target market.

Dov Girnun

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Many sales-led organisations have come to the same conclusion at some stage in their business growth life-cycle: In order to build a sales-led business for scale, you need to adopt a multi-channel sales distribution strategy. In our world, this means a combination of direct sales (boots on the ground), digital marketing and strategic partnerships.

After five years we had grown Merchant Capital as far as we could organically. We needed a much larger sales distribution channel. Understanding the need for a multi-channel sales distribution strategy is one thing, execution is something else entirely. After paying significant school fees, our strategic partnership distribution strategy was crystallised, and off we went to bring our chosen partners on board.

1. Finding strategic partners

Re-calibrating our sales strategy led us to the conclusion that we needed a strategic partner who could bring us ‘one-to-many’. In other words, we needed to identify potential partners (‘one’) who have ‘many’ sweet spot clients who are also our target clients, and whom they are already servicing with other products daily.

The end result of this three-year process has been strategic partnerships with Standard Bank and Discovery Insure. In the case of Standard Bank, every business that utilises a Standard Bank point of sale (POS) system can apply for a cash advance from Merchant Capital. Thanks to the partnership, Standard Bank POS merchants can access a cash advance within less than 24 hours of application.

It sounds incredibly simple and straightforward, but the process of identifying the right partner, creating the value proposition and then building a relationship that can result in such a partnership is anything but.

The most crucial element in this process was identifying partners who could benefit as much from a relationship with us as we could from them — in other words, ensuring a strong mutual value proposition.

When you have a business need, it’s easy to convince yourself that your prospect or potential partner needs you as much as you need them. Unless you are absolutely sure that this is the case however, there’s a strong possibility that you end up having a life-changing initial meeting and then never hear from them again.

This can happen for one of two reasons: Either you haven’t found the right partner who will also benefit from a partnership with you, or you haven’t been able to adequately distil that value. If this happens, very often you’ve missed your opportunity and won’t get a second chance.

Related: How Merchant Capital And Retroviral Were Built To Sell

We therefore had to be extremely disciplined in identifying which partners we wanted to approach. We focused on removing any subjectivity from the process by building an objective ‘partner scorecard’ that allowed us to weight certain attributes of the partner (such as a large client base, deep client relationship and mutual value proposition) with what we could offer them. This empowered us to make educated decisions.

2. Making first connections

Identifying the right partners is only the first step — now you need to make contact. By design, the partners we had identified were behemoth corporates with much larger priorities than meeting us, and convincing them on the upside of a strategic partnership needed to be robust and well-articulated.

Step one is getting your foot in the door. We began the process by identifying ‘champions’ within the partner organisation. This process takes time. We were able to secure meetings and found that running pilots was a good way to provide demonstrable evidence of the proposed ‘win-win’ proposition.

Early on in a business life-cycle (before any traction and brand equity exist), we found that leveraging off our network of shareholders and mentors to make introductions to the appropriate decision-makers within the organisation was of great assistance.

When we signed our previous investment deals, this was actually a key consideration for us. For obvious reasons, growth funding holds value, but the network and mentorship that the right board and shareholders bring to the table can be much more valuable.

Until you’re able to build brand equity and gain traction with a partner (or client), the right networks, introductions and referrals help you secure the meetings you need to prove yourself. And then you need to start small. Don’t expect a meeting with the CEO. Start with someone who could be your champion within the organisation.

3. Finding your champion

Finding a business sponsor to champion the partnership within the corporate partner is fundamental to your overall success. They will understand the internal friction and potential hurdles in navigating the naysayers within the organisation.

There will always be people, and rightly so, who challenge the partnership and ask why they can’t just do it themselves. If you don’t have an internal champion who is engaged and passionately buys into the partnership, then the initiative will most likely fall over and die.

Being the first mover in a partnership with an innovative start-up has many advantages if the product takes off. Often, these people want to be involved on the ground floor.

That said, big corporations are still taking a chance teaming up with young companies (brand risk and financial losses, to name a few). The upside of having already landed a smaller partner where significant traction can be demonstrated goes a long way in softening the initial concerns and risks from the large corporate’s perspective.

4. Nothing worth having can be rushed

The one word that comes to mind when thinking about this journey and the past three years is grit. In our experience, landing great partnerships takes many years of relationship-building and demonstrating solid business metrics and track record.

Related: 5 Lessons for Entrepreneurs from the Most Famous Sling in History

As I’ve already mentioned, our discussions with Standard Bank began three years before doing the deal. What we found useful in the early days of the partner discussions was communicating that in the next quarter we were going to achieve certain results and then coming back the following quarter and presenting the fact that we had hit our milestones, or hopefully exceeded them.

Just as you would do with an investor, this built a track record and credibility. The rhythm of checking in every few months and reporting back on progress is a great way to build the relationship over time without being too pushy as well.

Pulling it all together

There are two types of growth: Organic growth and scale. We’re an organisation that wants to scale. We’re aiming for exponential growth. This wouldn’t be possible without exponentially increasing our access to market.

We identified that the best way to do this was through the right strategic partner, but there are many channels that business owners can consider.

The important thing is not to just do what you’ve always done, unless you’re comfortable with organic growth. Evaluate your current model, and critically examine what you need to do to increase your sales, distribution and access to market. There is no one right way to do this. It took us time, and we needed to learn a few tough lessons before we were confident in the direction we wanted to take.

Related: My Business Is Growing… What Now?

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Performance & Growth

5 Lessons On Scaling Up Your Company From An EOY Winner

It takes a combination of grit, hard work and the right strategies to navigate the challenges of the scale up journey. What do some entrepreneurs do differently to make it to the top?

Louw Barnardt

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Building a successful company is really hard. Even when you have made it through the start-up phase – product development, market fit, building a team, earning first traction – the process of scaling up remains a challenging road.

Louw Barnardt CA(SA), recently named the Emerging Entrepreneur of the Year at the Sanlam/Business Partners Entrepreneur of the Year® Awards, shared his five top lessons learnt from fast-growing clients and from their own journey of scaling up Outsourced CFO to twenty five full time professionals.

“There are many stumbling blocks that hinder exponential growth at the scale up phase. Successful start-up founders do not always have the right skill set and experience to build a business from five to fifty people or from twenty to two hundred.”

Louw and his team have taken the concept of an ‘Outsourced CFO’ – a go-to finance person for emerging companies – and built a very exciting business from it. “There are hundreds of lessons one learns on the journey of building a scale-up company. These five stand out among all of the biggest lessons learnt.

1. Invest in People

Doing business is all about people. In start-up phase, founders are able to manage almost everything. From the social media post to the invoicing to the recruitment – it all falls on you. One founder can manage this for a short while and a founder team for a bit longer, but somewhere between five and twenty people this changes. The founders can no longer make every call, have every meeting, answer every client query.

It’s critical to build a solid leadership team and then to equip them with enough autonomy and authority to run with the various portfolio’s within the company. Put a head of HR, head of sales, head of client engagements, head of operation and head of finance in place as soon as you can and keep investing in them – it’s the only way to scale out of start-up mode.

Related: The 4 Steps To Scaling Your Start-up To The Next Level

2. Manage Cash Flow

The finance function sits at the heart of every business. If the numbers don’t add up, everything comes to nothing quite fast. Founders need to make sure that they have a firm eye fixed on financials. New cloud systems enable entrepreneurs to have access to every detail of revenue, profitability, debtors and cash flow in real time.

That’s right – exact live financial information at your fingertips for decision-making. Foreseeing cash crunches ahead of time and actively being able to navigate to avoid them makes all the difference in the scale-up process. Growth eats cash, so be sure to manage yours on the way up.

3. Streamline and Automate

A start-up can afford to do what needs to be done in the moment. Scale-ups cannot. Automation of company processes is key to enable scale in various company functions.

Automate your sales process with a tool like Sales Force or HubSpot. Automate your marketing with a tool like Hootsuite. Automate your finance with a tool like Xero. Automate your company culture input with a tool like Hi5. Putting a good system in place and investing in the understanding and utilisation of all of its functions is a prerequisite for high growth.

4. Prioritise Strategy

As execution becomes a bigger and bigger part of your company, the strategy that directs that execution plays an ever-increasing role. The most successful management teams set and stick to good habits around strategy: Annual breakaways to direct long term strategy. Quarterly strategy days to cement key strategic priorities for the next 90 days and the likes.

It may seem counterintuitive to have your full management team out of action for so many full days of work, but putting the right strategy in place to execute is the real deep work required to scale.

Related: Infanta Foods’ Marisa da Silva On Why Scaling Is Tougher Than It Seems

5. Brand and Awareness is key

The value of owning a top brand and of being top of mind with all your stakeholders cannot be overstated. A stronger brand lifts the market’s perceived value of your offering. Continuously starting conversations and finding ways of reminding your networks and target market of who you are and what amazing things you are doing opens up ever-bigger opportunities that play a huge part in creating scale for our top entrepreneurs.

“Building a company is hard work. But if you do it smartly, the juice is worth the squeeze many times over. Make these five lessons your own to hack the scale up journey as you build the business of your dreams.”

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