The Stresses and Challenges of Managing a High Growth Business

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Choosing to follow a path of high growth is not always a conscious decision. I have met many businesses who find themselves in a phase of high growth and whose owners are looking around wondering how they got there. However in order to continue to achieve high growth they must get to grips with the business and understand why they are successful. This can be stressful in its own right because, if they don’t know why they are successful, they won’t know what to do to rectify the situation if things suddenly start to go wrong.

Operating in a high growth environment is living with relentless pressure, as high growth will seek out any weakness in a business and magnify its defects until resolved. The pressure for all high growth businesses owners is akin to that of patrolling the perimeter of a large defensive position, where one is constantly on the lookout for breaches and attempting to repair them as quickly as possible to prevent further problems later.

One of the most common causes of stress is where the owner is not in full control of the business. I often recognise this when the owner comes out with statements like “I feel the business is running me” or “I’m running through treacle, the harder I work the less progress I make”. As decisions and issues pile up, the business owner starts to become more and more reactive and as such, loses the ability to direct the business. Sadly this situation, if left unchecked, has only one result. There will come a point where the backlog of issues create a tipping point and the wheels come off; often in the most spectacular way, with growth hitting a virtual brick wall resulting in little, none or even negative growth in the following 12-18 months.

Another common reason for stress in high growth businesses is that the underlying rate of growth in the business tends to towards a similar rate of change as new positions, recruitment, and management structures are implemented to support the underlying growth. This means a lot of decisions have to be made to drive the business forward and the business owner will, without doubt, make some bad decisions. This in itself creates the need to take more decisions to correct mistakes. Many business owners need to realise that it is more important to make a decision even though it might be wrong, than to sit on it and hope the problem goes away. It never does, and like many things in life, consciously doing nothing only makes the situation worse.

The key challenge for any high growth business is for the management to be able to look forward and foresee potential issues and problems. In order to do this effectively a number of things need to be in place, the business needs sufficiently detailed information to understand and monitor the key linkages in its business and that this information is available in a timely manner. By that, I mean very quickly. In the business I worked in, for example, we had what we called a flash (rough cut) sales figure for the previous month available on 1^st of the following month. Detailed management accounts were available by the end of the first week of the following month.  For many businesses this might either been seen as the Holy Grail or unnecessary, but it is fundamental to the success of a high growth businesses.

One of the less obvious but nonetheless significant challenges to assist management to look forward and make the appropriate decisions is one of culture. A healthy culture is absolutely fundamental to a successful high growth strategy, as individuals and teams need to grow rapidly to support and continue to promote the strategy of business growth. Staff and management will be in an almost continuous state of learning and development – that means more mistakes. In order to learn and develop, the culture must promote a team approach and not condemn people for getting things wrong. In a recent article I explained at last that there were hard numbers which reinforce what we always suspected; that healthy cultures deliver better business performance.

This article might have given you the impression that you would have to be slightly mad to want to choose a high growth strategy. There is no doubt that a high growth environment is a challenging place to be, it does however have its rewards for those who successfully master the conditions. Those who succeed in a high growth environment represent the best of business leaders and managers and whilst successful high growth businesses represent only 6% of all businesses in the UK, they contribute 45% of UK employment growth. Such companies are a vital resource, that need to be supported and encouraged and whilst difficulties are many the potential rewards are much greater.

Exigent Consulting provides specialist services for High Growth Business, Business Turnaround, and Mentoring to the Small and Medium Business. We help business owners improve the profit performance of their business. 

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Cash is King -Yes, But Not at Any Price

I was reminded the other day how people can get so focused on a mantra that they lose sight of context. Yes in a tough market Cash is King but not to the detriment of everything else.

Cash Is King

Let me explain, I was having a discussion with an internet business owner who was moaning about poor sales, and the fact that to get cash in he needed to reduce his margin. The more we talked the more I began to question the strategy of reducing price to get the cash in. His response always started with "well you know in these times Cash is King... 

Eventually I got him to show me an example of how this worked for him. Once he had finished I asked him a question "Ok, so if you are giving away margin, are you making any profit at the reduced level?" 

"Well that doesn't matter what is important is to get some cash in to pay suppliers and re order product." came the response.

"But surely if you are losing money on each sale getting the cash in, you are making the situation worse, not better. " 

"At the moment getting cash in is whats important"

"How regularly are you doing this? Is this just to clear dead stock for example?"

"Quite frequently because when we put our products out at full price we are losing sales to cheaper providers so we use this to strategy to get the cash in"

At this point I was getting a little concerned, "But surely you must know if you are making a profit otherwise you will only be building up bigger and bigger losses, after all if you are only losing £1 per item if you sell 1000 of them you've lost £1000!"

"Yes but if you don't get the cash in when you need it you can't pay suppliers and they put you on stop"

We were in danger of getting into a circular argument, so I suggested that if he wanted we could look in detail at his pricing to see if he was making the situation worse or better. What we discovered subsequently was that he was indeed making a loss on his reduced items but more worryingly also on some of his regular priced items, and that his dedication to blindly follow the Cash is King mantra was killing his business.  

So the moral of this story is yes "Cash is King" but getting cash in is only worth pursuing if its in the interests of your business. I do appreciate that there are times when you may make a loss sometimes; for example if you are off loading poor moving stock, but generating cash flow by cutting your margin without understanding the consequences of your actions is a dangerous strategy.

Exigent Consulting provides specialist services for High Growth Business , Business Turnaround, and Mentoring to the Small and Medium Business. We help Business Owners improve the profit performance of their business. 

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Why Businesses Are Too Late in Seeking Turnaround Help

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We all know that addressing problems early makes them easier to solve, and even when the treatment is unpleasant, like going to the dentist by and large we go in good time. Why is it, then, despite the harsh economic conditions and the large number of business owners clearly struggling to cope; it still seems that too many smaller businesses in the UK are reluctant to call in outside assistance even when it is clear that finding solutions to the issues impacting their business is beyond them?

Most independent businesses are in the hands of its founders, consequently these more than others find it difficult to view their business objectively. Most don't follow best practice and won't have regular management meetings nor generally do they have a detailed financial knowledge of the business. This lack of objectivity is the real issue. I cant count the number of times I've gone into a turnaround to discover that the owners have reluctantly called someone in, not because the business is in bad shape, but because they've exhausted their personal wealth in propping up a non performing business and now they've GOT to do something. Sadly, often at this point its too late.

Whilst no doubt there are clear legal tests to signify insolvency, these are seldom recognised by the management. They are invariably late talking to IP or turnaround specialists such as myself for the following reasons 

1.they're emotionally tied to the company, 

2 the stigma of failure, 

3 being overly optimistic (well you have to be an optimist to run your own business) and as such you tend to overestimate income and underestimate costs,

4 poor business management. 

There is a debate to be had about the almost complete absence of any type of business related subjects in general education which I submit leaves our entrepreneurs and business owners unnecessarily exposed. Many run businesses without even the most basic knowledge of financials or business or people management, so the wonder is why more businesses dont fail!

I would also observe that whilst accountants should provide advanced warning to business owners many don't because they are themselves technicians, and they concentrate on getting accounts completed on time. Experience has demonstrated that accountants are no better at running businesses than owners of other types of business. Also, because often their relationship with their client is too weak to survive bad news.

Exigent Consulting specialises in providing Business Turnaround, Sales, Marketing and Mentoring to the Small and Medium Business. We help Business Owners improve the profit performance of their business.

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Are You Worried That Your Business Will Fail?

For my last post of the year I thought I'd have another Guest blog. This is more as a help to an old friend who has recently published a book entitled “50 Essential Business Advice Tips To Help Prevent Your Business From Failing” This blog explains the thinking behind his book. You can get it as a free download and I'd encourage you to do so.

A happy Christmas to everyone and a prosperous 2011

Kind Regards

Laurence Ainsworth

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There are over 4.5 million businesses in the UK and every year 400,000 are formed, with nearly as many failing. Most businesses stay small or plateau at a certain turnover without being able to grow - probably because business owners are working ‘in’ the business rather than ‘on’ it; making tactical day to day decisions rather than strategic ones.

No one wants to fail in business; however statistics show that 1 in 3 businesses fail in the first year of business and a further 50% of the remainder don’t progress after the third year.

So what distinguishes a successful business?

How about the following?:

●     Knowing your strengths and weaknesses

●     Having targets in place

●     A business plan covering all aspects of the business

●     Effective targets and measurements in place

●     Ensuring that product and service offerings meet the needs of the market

●     Ability to create a competitive edge

●     Efficient, clear and consistent business processes

●     Inspired and driven leadership

Whatever stage your business is at, you could probably benefit by getting back to basics and reviewing all aspects of your business to identify what is missing.

Consider that your business is covered by the following ‘pillars’ of business: strategy, finance, sales, marketing, operations, resources and personal issues - if you could look at each of these in turn and identify what changes are required to ensure the future success of your business, this could form the basis of a business plan for your business.

Once you  have identified those key areas in each ‘pillar’ that need addressing, the challenge is then to take action and improve the way that your business operates. The important thing here is to prioritise which actions to take from the list generated - what needs to be done ‘now’ and what can be done ‘next’? Then who is going to do what, by when and what is an indicator that this step has been achieved.

Finally put some appropriate targets and measures in place to ensure that this simple business plan is moving forward and impacting the profit and performance of your business.....leading to success not failure.

To help you with this task, a book has recently been compiled by Paul Green - “50 Essential Business Advice Tips To Help Prevent Your Business From Failing”. Available as a free download here: http://www.paulgreen.biz/success_tips.htm