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What Do High Growth Businesses Do Differently?

Over the past 5 years the importance of the “High Growth Business” and how this relatively small group of businesses disproportionally impa...

Thursday 27 November 2008

A recession provides opportunities as well as challenges

Many small business owners are experiencing a downturn for the first time; and what a downturn to start! Nevertheless there are a few simple rules that they can follow which will help them survive and even thrive in this most difficult of business environments.

In describing what can be done I've employed the analogy of a football team which simultaneously has to employ both good defensive and offensive strategies to win.

Let's look at those activities that are defensive in nature. These will protect their client base against other competitors and will assess the fitness of their organisation. Secondly, there are those activities that can be considered offensive, in an attempt to win more business or win more customers.

Defensive actions can be split into external facing and internal activities. Externally they need to be looking to strengthening and at the very least maintaining their relationship with their best customers. Obviously this can be initiated by phone calls, but must include more face to face visits, and more overt proactive activity which can be in the form of newsletters, emails or calls. Also its worth considering particularly in the service industry whether you can get you clients on some sort of regular payment plan. Inevitably this will mean that they start paying for service in advance, making it much more difficult for them to be poached by competitors. Moving out to the next level of customers they need to be undertaking similar activity. Clearly less important customers warrant a lower level of investment but once you've categorised your customer base all those you want to retain should benefit from increased sales and marketing activity. The priority is clearly best customers first, the least important customers, last. Customer importance should be related to the opportunity of income growth as well as the amount of business you currently get.

Internally business owners should be reviewing all their business and management processes. My experience is that for most businesses their internal processes are at best passable, but very often for SME's they're hand crafted and reliant upon the knowledge of the current personnel to make them happen making them clunky and often counter intuitive and hence very inefficient. If we treat the recession as a get fit regime, then we need to be removing the inefficiency from all our internal processes to get to the cost of production down and increase gross profits. So review all internal processes from sales and marketing to credit control and it will be possible to quickly discover where the business is inefficient and free those improvements across the board to extract additional profit for the firm. This is not an easy process as people are resistant to change. It requires conviction and dedication to implement these new processes but the results can be staggering.

Let's turn now to offensive actions. Most of these activities relate to business development. The business needs to organise, systematise and implement regular sales and marketing campaigns in its chosen areas. Initially it will meet increased competition as all savvy business in their market will be doing the same. In addition struggling firms will be attempting to stay afloat by "buying" business. This classically leads to a situation when revenues come under pressure and marketing costs rise. Successful businesses resist the temptation to slash sales & marketing budgets as that creates a vicious circle of decline. However, as the recession bites, those firms who can't manage the fitness regime will fall by the wayside reducing competition and opening up more new business opportunities for those left.

For those businesses with a strong constitution, there is also the opportunity to grow by acquisition. There are bound to be a significant number of businesses that would be only too pleased to run into the arms of a competitor rather than face extinction. As an alternative build up a relationship with some local insolvency practitioners who may provide opportunities for cheap acquisitions post failure.

Exigent consulting has been providing specialist advice to small and medium businesses since 2002. Its founder Laurence Ainsworth has successfully managed businesses through the recessions of the early 90's and 2001-2.

Friday 21 November 2008

Grumpy Old Man on Behalf of Sissies!

I was looking through the multitude of information and articles that stream across my desk - mainly because I have this butterfly mind and its much easier than concentrating on one thing; when I came accross this article

Downsizing is for Sisses: Putting My Money Where My Mouth Is! by Jim Gilbert

It was to me like putting a red rag to a bull and I just couldn't help myself here's my reply I think I'm right well I would wouldn't I

"Hi Jim,

Sorry, I have to say what a load of old twaddle!

Layoffs aren’t for sisses, making redundancies is a very unpleasant thing to have to do. Neither is it done through lack of imagination, its done through lack of other alternatives. Most business turnarounds require an element of crisis management, where the company, and this is where I agree with you, has through poor management allowed their position to deteriorate to the extent that they need external help to keep it from going under.

Under these circumstances in 9 times out of 10, the company has insufficient cash resources to maintain and support its current debt burden. Whether that be salaries or payment to creditors or bank loans. In simple terms in this situation no self respecting creditor is going to wait for payment on the chance that you might be able to increase sales at some indeterminate point in the future such that they can get paid. In most cases a creditor will demand some concessions from you for its continued support. These concessions are typically proof that you have cut down your expenditure. In most businesses the largest single variable cost is labour. Therefore that is where you have to go to find the savings to allow the business a chance to succeed.

In any turnaround two things typically have to happen; firstly the need to reduce your cost base and secondly you need to try to increase sales. This in turn is crucially dependent on two things; firstly the relative competitiveness of your product or service and; secondly the state of your marketplace. At the risk of stating the obvious if you are in banking you are unlikely to want to substantially increase your loan book in these highly volatile times.

Having said all that, I had to agree that too many businesses do not explore the sales and marketing opportunities available to them. This is particularly true in the smaller business sector where owner-managers have built up a business based on the fact that they are good at what they do, rather than because they are good at running businesses.

Rgds Laurence Ainsworth
Exigent Consulting
Business Turnaround Specialists since 2002 "

Lets suck it and see

Well this is my first attempt at a blog.

I'm hoping to balance information with humour and the odd rant to reflect how I cope with being a small business attempting to establish itself in a highly competitive market.

I'm happy to answer any questions on issues for the smaller business where I can and - have some fun.

So feel free to attack what I say or why I say it after all theres nothing worse than no response.......

Happy Weekend