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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.

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Performance & Growth

How To Survive Exponential Change In Your Business

How to get out of the habit of thinking small, and start thinking in giant leaps for radical – and profitable – change.

Matt Brown

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I recently went to a meet and greet session at a company that turns over R13 billion a year. As I was introduced to other executives, I was referred to as ‘the guy who is at the pinnacle of podcasting in South Africa’. This kind of feedback is truly humbling, but after hearing that, the only question I had on my mind was: “But for how long is anyone or any brand at the top of any market?”

The Challenge of Change

Change is no longer happening in a linear fashion; it’s occurring exponentially. We love linear thinking, because we have been conditioned to think in small steps (1, 2, 3, 4, 5, 6) but we totally suck at exponential thinking (1, 2, 4, 16, 32, 1 024). To a greater and greater extent this is the world we are heading into.

Almost inevitably, markets that used to be relatively predictable are winding up in an entirely new paradigm and some of the world’s largest and most reputable companies have been caught unaware. The main culprit? The exponential growth surprise factor.

For example, in 2012, Toys R Us was a $12 billion company with a retail footprint comprising 1 600 stores. In September 2017, they filed for chapter 11 bankruptcy… only five years later. The message is simple: Innovate or die.

But more importantly, there is a new challenge facing all entrepreneurs today: How can you prepare yourself and help your business survive in an exponential business world?

Related: Asking The Wrong Questions Will Break Your Business

Here’s a four-step process that can help you get started.

1. Look out for the Warning Signs

In my experience, the warning signs of disaster are present in every industry one to three years before disaster strikes. Ironically, many businesses are simply not paying attention to the warning signs in their market — or even worse, do not know what warning signs to look out for.

Because all industries and businesses are subject to different warning signs, a simple, yet highly effective way to know when your business is in the throes of a critical warning sign is when something within your industry doesn’t make sense.

When a linear industry is on the verge of disruption it generally manifests into something that doesn’t make sense for the incumbents in that industry.

In 2008, when blockchain technology and the Bitcoin first manifested itself, it didn’t make sense to many in financial services. Fast forward to today and there are over 1 000 cryptocurrencies that you can actively trade and the promise of the decentralisation of all industries — not just the financial services industry — is very real.

So, if something new enters your industry and it doesn’t make sense to you it’s time to apply step number three.

2. Ask Why

If you ask a group of incredibly smart people to solve a very difficult problem and they can’t seem to solve it, you may find that they don’t lack collective intelligence, but perspective on the problem itself.

Whenever this eventuality occurs the best thing to do is ask “why” repeatedly until you find the perspective that you need to make new decisions in your business. It’s one of most powerful yet completely undervalued questions that any business leader can ask.

3. Act

Almost all success in business comes down to execution. Toys R Us didn’t act. When all is said and done, they simply did not believe in the Internet and they paid the highest price. In an exponential world, the ability to not just act but to act quickly is priceless.

Related: 5 Answers From Digital Kungfu On Why Podcasts Are Your Best Self Development Tool

4. Move forward

No industry is immune. Let’s take podcasting for example. Our data shows that the addressable market for podcasts is already 16 million people; 50% of all podcast consumption growth over the last five years has happened in the last 12 months; and media consumption is shifting faster than we think into the on-demand space.

To address this exponential shift in media consumption, the Matt Brown Show is evolving from a podcast into a fully-fledged new media company. So, my question to you is simple: How is your business preparing itself for the future? EM


IN YOUR TOOLKIT

Get some perspective

the-innovators-dilemma-when-new-technologies-cause-great-firms-to-fail-by-clayton-christensenREAD THIS: The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail, by Clayton Christensen

While decades of researchers have struggled to understand why even the best companies almost inevitably fail, Clayton Christensen shows how most companies miss out on new waves of innovation.  His answer is surprising and almost paradoxic: It is actually the same practices that lead the business to be successful in the first place that eventually can also result in its eventual demise. This breakthrough insight has made The Innovator’s Dilemma a must-read for managers, CEOs, innovators, and entrepreneurs alike.

ASK WHY

Drawing from Matt Brown’s article, start implementing quarterly meetings that review the biggest challenges the company is facing, and start asking the question ‘why’ of even the most basic tenets that are being taken for granted.

The idea is to find a new perspective of the same problem.

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Performance & Growth

Too Big For Your Boots?

How to manage the complexities of a rapidly expanding business.

Greg Morris

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It may come as a surprise to many, but too much success too soon can result in a company’s failure. That’s often because the company out-runs its ability to sustain and control that success, and a decline follows.

Say, for instance, that an organisation reaches increasingly higher sales targets, but its infrastructure doesn’t scale at the same rate. Inconsistencies and weaknesses begin to appear in its management systems. Quality suffers, and, eventually, the positive trend plateaus and tips downwards.

The answer? Don’t misjudge the impact that business and management can have on realising a sustainable growth strategy. The systems you have in place today may not work when addressing new challenges – or, they may make it next to impossible for you to meet them.

Related: The Most Common Mistake with Global Business Expansion

If your organisation is on a growth path, consider these six elements:

1. The right talent

Develop a management system that measures accountability against specific standards and ensures that the quality of your products and services doesn’t waver. As service quality often depends on human capital, you’ll need the right mix of people at every level.

Give non-management employees the autonomy to contribute positively, and recognise them for it. They’ll reward you with good outcomes and ensure that the foundation of your growth is that much sturdier, while developing a robust working environment.

Identify the people in your organisation whose roles will be most affected by your expansion, and enable them to take initiative outside of their standard work requirements. This way, they’re more likely to get involved and help you to create new cross-organisational systems that address tasks in parallel.

2. Controlling quality

It’s easy to lose track of quality when your business is growing speedily, so give the task of maintaining quality to a loyal management team. Assign them the responsibility for overseeing everything from product development to internal systems and manufacturing.

It’s also important for you to remember that service-based organisations face quality concerns as they grow, and that finding the right talent (see Element #1 above) can be as limiting as a blockage in a production line.

Related: 6 Signs That You Should Stop A Business Expansion In Its Tracks

3. Processes that scale

Make sure that your processes and projects are executed in the same way every time. Don’t let your systems become un-scalable; establish which ones are most likely to come under strain as the company expands.

4. Manage cashflow

Numbers never lie. When your company is growing, beware of the danger of spending more than you can afford. More oversight or adjustments may be necessary to increase effectiveness, quality, and sales.

When determining if you’re going to front-load your capital investment, be confident that cash is coming into your account as a result of the investment. Remember that cash profits and accounting profit are very different. Cash profits are your bread and butter.

If you aren’t positioned to finance your own expansion and you require outside funding, carefully consider the pros and cons of getting into debt, as well as the length of the loan and interest rate.

Related: Expansion Funding Options For Your Growing Business

5. Finding investors

Conduct detailed research into potential investors, as each will have sector or industry interests, investment mandates, and value preferences. Pinpoint these, assimilate with them, and make sense of them before engaging.

Then, make the effort to thoroughly evaluate the potential investor. Do this by first determining where your interests are aligned and then uncovering:

  • The source of the investors’ capital
  • Their investment track records
  • The returns that they usually aim for
  • Their traditional risk profiles
  • Their investment mandates.

6. Communicating culture

Spend as much time determining, sharing, and entrenching your company’s current and growing culture as you do addressing your growth strategy.

With each new stage of growth, commit time and resources into making sure that the cultures of different departments don’t implode when put together – impacting on customers, important employees, or worse.

Make your employees aware of what the future will hold, how it is likely to affect them, and what the bigger picture looks like.

In essence…

No matter the size of your business or what your growth plans are, expansion can expose you to a host of risks. These may be existing problems that worsen, or new ones that are uncovered for the first time. Either way, it’s crucial that you identify them, prepare for them, and make plans to protect yourself in the face of growth.

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Driving Your Business Growth Towards More Customers

Designed to help its customers get the most from their businesses through the right telematics solution, New WEBFLEET can help you reach your customers quicker, get more done, improve efficiencies, save costs and boost your revenues.

TomTom Telematics

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Europe’s highly regulated operating environment has made telematics ubiquitous in business. On the one hand, this means industries across the spectrum have become safer, more efficient and highly productive across the EU. On the other, it’s much harder to stand out from the crowd when everyone follows the same best practice standards.

“We don’t have those same stringent regulations in place,” says Justin Manson, Sales Director, Africa at TomTom Telematics. “Our clients have realised what a huge competitive advantage this actually offers them though.

“Locally, everyone understands the role that telematics plays in tracking what your drivers are doing right and wrong, and use it as a tool for encouraging good driving practices, but there’s so much more to this solution, and we’re making it our mission to help business owners really use it to their benefit.

“When deployed across the organisation to its full capabilities, a telematics system can radically improve productivity and workflow. Done correctly, a business can save up to 10% on its bottom line, and redeploy that cash into the company’s growth, thanks to drivers reaching customers quicker and getting more done. The right data also increases productivity and ensures better turnaround times.”

Thomas Schmidt, MD of TomTom Telematics, loves visiting South Africa for this very reason. “Because so many business owners aren’t using telematics to their full extent, there’s such a huge opportunity for us to assist businesses in their growth here,” he says. “We deliver a high-value stack of products that can change the way companies operate, and most importantly help them save money and make money. The challenge for us is educating our customers so that they understand what our solutions offer, and the incredible impact they can have on a business. We consistently improve these solutions based on customer feedback as well, making them very much from customers for customers.

Related: Why Your Fleet Management Plays a Pivotal Role In Your Business

“Anyone can buy a map for less than R100. Why invest in such expensive devices? The answer is because we’ve developed solutions that change lives. With the right data — and access to that data — you increase safety, simplify your business, drive efficiencies, increase your output and customer service, and ensure you are always productive and reliable — across the organisation. And that impact can be measured, and given a real ROI value.

“Imagine the impression companies that operate at that level make on their industries. They stand out from their competitors. There is so much room for growth in South Africa as we deploy these solutions.”

Game-changing solutions

As an organisation, TomTom Telematics is focused on continuous growth and innovation as well, constantly learning from market conditions, its customers and industry needs to improve its product offerings.

The result is the launch of New WEBFLEET in February 2018. “We’ve increased the value we offer our customers,” says Thomas. “We’ve collated data from hundreds of thousands of customers around the world who gave us their feedback through surveys, and New WEBFLEET is a window into easy-to-use, smart fleet management that is a game changer for companies.”

“TomTom Telematics is in the business of helping businesses,” agrees Justin. “Our goal is help our customers master their challenges. The right data at your fingertips will help you change the way you operate. That’s our goal. How much cash is being left on the table in an organisation because of inefficiencies?”

Introducing New Webfleet

The smartest way to manage your vehicles and mobile workforce

tomtom-telematicsTomTom Telematics’ state of the art Software-as-a-Service (SaaS) fleet management solution, with best-in-class user interface, is inspired by two decades of working together with customers to achieve more for better fleet management. New WEBFLEET is everything you need to manage your vehicles in the cloud, in real time. It allows you to monitor reports and dashboards, manage orders/workflow, and improve driving behaviour, safety and service, helping you save fuel and reduce costs.

Best-in-class user interface

  • A future-proof platform with a completely renewed interface, based on the latest HTML5 technology and driven by continuous innovation.
  • Simple and clean interface, with minimised clicks for faster working.
  • Intuitive functionality, means it is more accessible for greater impact across your business.
  • User rights management and state-of-the-art data handing ensures the highest level of data privacy and data security.
  • Fast access to the right information.

Related: Fleet Tools Will Help You Get More Done In Less Time

Map view

Know where your vehicles are and where they have been. Different map options such as Google, Google Street View or satellite map are enriched with traffic information, giving you a more detailed view on what’s happening on the roads. Toggle between different types of information on the map such as traffic, addresses and areas and create specific views, so you only see the information you need.

Dashboard

New WEBFLEET’s dashboard gives an overview of performance at a glance. Up to 27 KPIs can be used to track the performance of vehicles, individuals, benchmark teams or give a simple overview. This helps you to track real-time performance against your pre-defined KPIs.

Reporting

New WEBFLEET gives you instant access to the information that matters, meaning you can spot trends over time and use real-time information to make smarter and more informed decisions. You can instantly download or schedule reports to help you stay on top of everything — from fuel efficiency and legal compliance to quality of service.

Manage on the move

New WEBFLEET is optimised so you can manage your fleet on any device by entering WEBFLEET through a web browser or by downloading the WEBFLEET Mobile app on your smartphone.

Send routes direct to drivers

  • Plan accurate routes in New WEBFLEET by adjusting multiple variables such as location, time of departure/arrival, traffic and vehicle type.
  • Get a choice of alternative routes, as well as suggested fastest route with traffic.
  • Customise your route by simply adding new waypoints, or dragging and dropping existing waypoints on a route. Then choose from guided or forced route* options.
  • Send planned routes directly to a TomTom PRO driver terminal to keep your drivers on the right track.

Related: Time Is Money And It’s Time You Saved Both When Running Your Fleet

Personalised Map views*

  • Create your own saved map view to reach information you need fast.
  • Switch between vehicle groups or areas, without needing to adjust the map filters and zoom levels. n

Personalisation

Many ways to customise WEBFLEET to suit individual requirements from personalised views to adding information to make what you see more informative on one page.

Plan a route the way you want it

Use multiple variables (including waypoints) to give fastest or most efficient routes.

Access WEBFLEET

Across different device types, allowing you to always stay on top of business.

Simple, clean and easy to administer

Toggle between views to get the right information to focus on the task in hand. Get the right information to the right people at the right time, keep data secure and in the right hands.

Send routes to driver terminals

In real time, ensure drivers follow or avoid specific routes.

Visit telematics.tomtom.com/tellmemore and follow us on Twitter @TomTomWEBFLEET

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