Posted by: DrAlanRae | December 22, 2008

The business growth path

When people set up in business, they have a choice to make – to grow or not to grow. This seems a bit odd – surely everyone wants to grow. Let me tell you a secret – they don’t. All the government stats we’ve ever seen suggest that only about 80% of companies are interested in making any real money. The rest want control over their own space.

The real truth is that despite people telling you that there are 4 million small businesses here in the UK, the truth is that about 2.5 million are sole traders. There is a massive long tail. Governments and IT companies are always looking at the small business market because they believe that stimulating demand here will be to there advantage. But there aren’t really that many of actually.

I did some work for PCWorld a couple of years ago and I dug all this stuff up because it was relevant to them. Here are a few stats to make you think.

  • Only 7.5% employ 5 or more people
  • Only 25,000 UK companies employ 50-250
  • Only 250,000 UK companies employ 10-50

Business link considers a high growth company to be one that can consistently grow 25% per year. By that definition we are a high growth company. However when you get bigger it gets more difficult.

clip_image002

I’ve come to believe that growth companies are planned from the outset and that certain abilities that are needed to progress. These are summarised here.

Everything depends on the values and vision of the company of course but the key skills you need are

1) Being able to systematically create new product sets

2) Being able to create systems to deliver them

3) Being able to tell the world what you’ve got – in the right place, to the right audience at the right time

4) Being able to attract and keep the best people to make it happen

clip_image004

Companies exist in an unstable landscape. They need to be able to grow to control a scalable niche which is part of the overall global economy if they are to be ultimately successful. Growth companies tend to start with a management team rather than a single entrepreneur and undergo defined transitions.

One transition occurs when the organisation needs the infrastructure to behave “formally” – deal with regulation, demonstrate the ability to monitor KPIs and the other constraints of dealing with larger organisations which need exchanges of structured information.

clip_image006

A second occurs when the organisation needs to scale having achieved proof of concept in its niche. This means implementation of an enterprise type IT solution capable of scaling as far as is necessary. (We believe that while innovation is often not only about technology per se, it often needs an IT infrastructure development to leverage value.) Many growth companies of course sell out as this point is reached.

These IT issues are illustrated in this chart from a recent survey carried out by IOD / Dell which clearly shows peaks in investment at these 2 transitions. [1]

We believe that innovative, growth companies consciously put their IT infrastructure at the heart of their activities. However, in order to be successful they need to deploy IT effectively by engaging and motivating their staff by making it clear that technology lets them be more effective in serving their customer base with a continuing string of new products and services. This engagement involves integrating systems and people skills as well as being able to demonstrate the characteristics of a learning organisation as outlined by Senge[2]

It’s surprising how few growth companies there are. We know that only about 1600 companies grow past the 10 employee barrier each year.[3] In a study carried out in the 90s, Deloittes only identified 317 fast growing companies defined as 25% sales growth per annum for 4 consecutive years (15% for companies over £10m turnover) out of a total population of 6,786 companies which were UK owned, with sales of between £5million an £100 million and which had 5 years of financial records.

Deloittes found that successful companies had learned how to develop their product range from a well established base and they avoided things that distracted them from driving the business forward.

Research carried out by Smallbone found that proactive management of product and market development is what most consistently distinguishes high growth firms from the rest.

Smallbone et al looked at 6 marketing activities

  • New Market Opportunities
  • Wider customer base
  • Change in product range
  • Innovative products
  • Number of competitive steps
  • Type of competitive steps.

High growth firms (those who doubled their sales turnover in 5 years) actively pursued 4.3 of these activities while average firms did 3 and companies that declined did 2.2

So this suggests that product innovation is more important than process innovation except in industries undergoing a step change in production processes.

Changes in organisation and management were a distinctive and consistent feature of high growth firms. Introduction of professional managers, and external consultants was a key indicator (although only 36% of even high growth firms did that)

The most successful firms worked to create time for the leaders. This is more difficult to obtain in the 10-19 size band than elsewhere. Job generation occurs in high growth firms as their focus on productive advantage sucks in more individuals.

In summary Smallbone concludes that growth companies

  • Develop new products and markets from existing base – using the Ansoff Matrix approach
  • Systematically develop more profitable market niches
  • Knowledge Economy companies increasingly function as stages in other peoples networks – a more fluid version of Porter’s Value Chain ideas
  • More managers, devolved management responsibility – make time for thinking
  • Thinking time a particular challenge for the 10-19 firm
  • Owners think like businessmen, not managers

So there you are guys – easy peasy, So why aren’t we all doing it?


[1] Download it here http://www.iod.com/intershoproot/eCS/Store/en/pdfs/policy_paper_sme_dell.pdf

[2] Peter M Senge – 5th Discipline 1990

[3] Business Link for London Data 2001

Advertisements

Responses

  1. Hey! I love your page 😉
    If you are looking for Paid Surveys this is the place for you.
    Start advancing your paychecks on http://tinyurl.com/954vgv

  2. Hi i enjoyed your article, very informative.
    I am a great believer in that if your business isn’t growing then it will die because in business you can’t stand still.
    So any one who just sets out to just tread water is going to drown.
    The businesses that grow during this recession are going to be unstoppable when they come out the other side. Companys that pull their horns in and keep their heads down could fall flat on their faces as they will have weakened themselves.

  3. Generally Ido not post on blogs, but I would like to say that this post really forced me to do so! really nice post. Check out my blog: http://x-n2o.blogspot.com

  4. It sounds like you’re creating problems yourself by trying to solve this issue instead of looking at why their is a problem in the first place.

  5. Best you could edit the webpage subject title The business growth path How to do Business to something more catching for your blog post you write. I enjoyed the the writing still.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

%d bloggers like this: