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Performance & Growth

The #1 Reason For Failure of Businesses Over Two Years Old

Good financial data = high impact growth.

Greg Fisher

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There are two key reasons why it’s so difficult to gather and use really high quality financial data for making critical business decisions. Firstly, the tools for transforming financial data into useful information are somewhat complex.

The people who know how to transform basic data into meaningful information typically have lots of training and are often really smart; therefore they charge a lot of money for their services.

Hence, smaller private businesses often cannot get access to such people.

Secondly, for financial data to be meaningful, it needs to be analysed in comparison to something else.

Many private businesses typically don’t have access to the performance metrics of other firms in their industry. Such information is proprietary, therefore even if a business owner can do the advanced calculations to transform financial data into useful information, they don’t get the full benefit of it because they have nothing to compare it to.

This creates a real conundrum for you, a concerned, ambitious business owner:

You want to get the right information to make the best business decisions possible, but you can’t afford to keep hiring high-priced consultants, and you have nothing to compare that data with, even when you do analyse it.

Enter Gareth Ochse and Kenneth Kalmer with ValuationUp, a new online financial analysis and strategy tool for privately-held businesses.

ValuationUp is a web-based platform, designed with a simple, intuitive and familiar interface to allow entrepreneurs and business owners to independently track and interpret critical financial metrics about their business on an ongoing basis.

This not only provides you with valuable information to make much better business decisions, but it also educates you on your business and helps you understand performance relative to other organisations.

The ValuationUp founders have come up with a powerful way for business owners to think about transforming financial data into meaningful information. In this article, they share aspects of their framework to provide a roadmap for thinking about when and how financial data can and should be used to better manage a business.

In unpacking their framework, we will consider three key questions:

  1. What insights can you get from financial data?
  2. When are financial insights valuable?
  3. And who should care about key financial insights?

What key insights can you get from financial data?

Imagine that you are a doctor and you need to diagnose a serious ailment of a patient. The easy option is to ask the patient a few questions, poke and prod in a few obvious areas and then deliver a diagnosis. Although this option is easy, it’s probably not the most effective.

We would prefer a doctor to do the appropriate blood tests, ask deep and insightful questions and perform the necessary scans.

Similarly, if we want to understand a business we need to perform a proper analysis of the organisation’s financial data. Ochse and Kalmer point out that such an analysis will provide insight in four key areas: Performance, price, potential and priorities.

Each of these four areas open unique insight to properly understanding the business. Failure to properly use financial data to evaluate these four areas can create
serious ‘blind spots’ for a business owner.

Related: Staring Down Failure

1. Performance

How well is a business currently being run, benchmarked against its industry peers?

Insight into business performance comes from transforming financial data into ratios.  However, performance ratios in isolation are not very useful. Ratios need to be compared to ratios from prior years, to see whether performance is improving over time. Ratios also need to be compared to other organisations to see how the business compares to other similar enterprises.

To do this, a manager must decide what performance measures are most important for their business, collect data for the current year and prior years and from similar businesses, transform the data into meaningful ratios and compare the ratios across time and between businesses.

The advantage of using a consultant or a service such as ValuationUp is that they often have templates for doing all these calculations and access to benchmarking data, thereby making performance measurement much more meaningful and insightful.

For example, ValuationUp has built a dataset of nearly one million financial statements across 1 000+ industry groups to benchmark financial performance of firms against industry peers.

They allow you to immediately assess whether your firm is under-performing across most metrics by comparing performance to 50th and 75th percentiles.

2. Price

What is the business currently worth?

Valuing a business is no easy task. Therefore most business owners have no real idea about what their business is worth until they try to sell it (and even then the price at which their business is valued may be vague and ambiguous). Financial professionals have invested heavily in coming up with highly sophisticated ways to value businesses.

The problem is that most of these methods require a PhD in finance to be properly implemented.

They require firms to project cash flows into the future and then discount future cash flows back down to their current day values, while adjusting for the risk of such cash flows – no easy task.

Yet, knowing the value of your business can be very meaningful, especially if you are able to track value over time so you get feedback on what activities, clients, products and services are adding value to the business and which might actually be destroying value.

At a minimum it’s worth getting your business valued once every few years so that you know the size of the ‘asset’ you are managing and whether it is truly growing.

It’s even more valuable to have regular (eg. monthly) insight into the value of the business so that there is a tighter feedback loop between action and impact — the action that you take in the business and the impact it has on the value of the business.

3. Potential

What could the business be worth in future?

The third focal area for really understanding the financial data from a business is assessing what the business could be worth in the future. Most business owners have an idea of what they want their business to be worth at some point in the future.

However, for many people this is merely a dream and linking that dream to reality is almost impossible.

But, with a tool that dynamically models the value of a business, it’s possible to assess what the business might be worth in the future.

The ValuationUp dashboard splits the business into short-term, medium-term and long-term variables, all visible at a glance. This allows the user to understand the trade-offs between optimising a short-term metric (eg. liquidity) with a long-term one (eg. firm valuation).

4. Priorities

What actions are required for a business to achieve its financial potential?

Financial data can be used to assess the impact of operational actions on financial measures.

Managers can assess how action to change variables such as inventory days, marketing spend, debtors’ policies or product mix impact a firm’s valuation.

In so doing, managers can garner deeper insight into the actions that should be considered key priorities as they move forward in building a business to create value.

Although insight from financial data is useful almost all the time in managing a business, there are key pivot points in the life of an enterprise when astute financial insights become highly salient. Ochse and Kalmer point out four key times when such insight is critical.

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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

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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Performance & Growth

Use Growth To Help You Live Like A Hero

Often strengths become weaknesses as we progress through our business journey. If you want to remain the hero, you need to focus on growth.

Erik Kruger

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“Do our heroes fall from grace? Sometimes.

However, what makes them a hero is that they fight and crawl their way back to the top. You aren’t a hero because you were once great. You are a hero because you continually strive to be great.”

I am a big Batman fan. The 2008 film, The Dark Knight, gave us an iconic line. In it Harvey Dent, who later becomes Two Face, says, “You either die a hero, or you live long enough to see yourself become the villain.”

It’s a cutting view of a fall from grace: How our heroes often become vilified through their actions or our perceptions of them.

But I would like to suggest a different context for this quote. As an entrepreneur, you must develop certain qualities and characteristics to become successful. The problem is that those same qualities and characteristics, once the tools that pushed you to success, can at a later stage become the stumbling blocks that prevent you from progress.

Growth beyond abilities

Here’s a quick example. You wake up one morning with a great idea. Soon after, your idea has been translated into action and your business is up and running. You find yourself jumping between different roles. Sales. Marketing. Accounting. Operations. All your time and energy gets funnelled into the business. You work late at night. Sure, it impacts your social life but at least you don’t have a family to worry about.

Related: 5 Fierce Ways To Become The Ultimate Entrepreneur

Then, growth. Things change. And your superpowers become weaknesses. You need to hire a team to help with the increasing demand on the business. But you struggle to let go. You want to hang on to your ability to control every aspect of the business. It’s how you have always done it. It’s what led you to success. However, the business requires you to change with it. To learn a new skill; finding the right team and trusting them with your dream.

You might then find yourself in a serious relationship or married. Perhaps even a kid. And the amount of time that you can dedicate to the business is impacted. You must find ways of staying productive at work while making time for your family and close relationships. Your previous ability to pull all-nighters becomes futile in the face of new expectations as you need to divide your time in a meaningful way.

What once was a strength now becomes a weakness, and this happens much faster than you might think. So, how do you prevent your superhero abilities from withering?

Truth in reflection

Everything we do starts from knowing. You would be surprised to know how much of your behaviour is driven by subconscious programming that you grew over the years.

Since this behaviour becomes a part of your identity it becomes almost impossible to see how it affects the way you interact with the world and those around you.

So, the only way to really create a new set of behaviours is to pause the auto-play function. And for this to happen you need self-awareness and reflection. You do this by creating time for meditation, journaling, and spending time with a coach or mentor.

Perpetual Evolution

In my experience, entrepreneurs are pretty good at learning new things. Especially in the early days. So, as your business grows, you need to grow with it. Unfortunately, many entrepreneurs get left behind. It’s much more ideal if your growth drives business growth than the other way around.

I am not going to harp on about this because I think there are more than enough resources that can help you to evolve your thinking, and they aren’t hard to find, in fact you are holding such a resource in your hands right now.

Related: Want To Achieve Greatness? Be 1% Better

People Are Mirrors Too

The people around you are pretty good at holding a mirror up to you. They aren’t always aware that they are doing so. They hold up the mirror by reacting to you in a certain way and by speaking to and about you in a certain way.

If you are paying attention, then you will pick up on the clues that they leave behind. You will be able to read between the lines and hear their cries for support, encouragement, and trust. But of course, what you are seeing is not a reflection of them but rather a reflection of you.

What part of your identity is robbing people of support? What have you done that created a culture of mistrust?

It all comes back to you and the way you have been conditioned and how you are, in turn, conditioning those around you.

You can stay the hero

That’s why you can’t give up. Heroes don’t give up. — Kiera Cass

 

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