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Breaking through the business growth barrier 17/08/2011

It has never been more challenging for businesses to grow. However as Melissa Grafton, a partner at Andrum Consulting, the management consultants for entrepreneurial businesses, explains, expansion is possible if you are prepared to tackle the barriers to growth.

Breaking through the business growth barrier

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  1. Three steps to growing the business
  2. Where does the growth come from?
  3. Access to additional finance
  4. Cashflow management
  5. Controlling overheads
  6. Retaining employees
  7. Winning and retaining customers
  8. Managing risk
  9. Steel a march on competitors
  10. About Melissa Grafton

Three steps to growing the business

It may sound trite but there are three steps to growing a business. You need a clear growth strategy, a plan to implement it, plus the ability to navigate the many barriers that will doubtless litter your path along the way. 

They say the devil is in the detail, and it’s true to say that in today’s climate this third step has become the truly crucial one. This is because the barriers are not just the conventional ones such as increasing costs or harnessing new technology, the opportunities for growth are themselves beset with interlinked problems.

For instance in the last quarter of 2010, we conducted a survey to take the pulse of entrepreneurial businesses (1). As part of this we asked where respondents felt the greatest challenges were to success. As you would expect lack of business confidence, too much red tape and too little time in the working day feature heavily.

(1)  Andrum survey:  What makes entrepreneurs tick, Quarter 4, 2010

Where does the growth come from?

However, if you also examine where the businesses expect their growth coming from, you see another set of challenges await them. For instance 36% sees expansion in the UK and 26% sees a major new product or service as a source of growth in the next year. These plans demand additional finance, but in today’s climate this is a real issue.

Figures from the Bank of England suggest business lending overall continues to decline and over 40% of our survey respondents said that lack of finance for investment is currently an issue. 

This lack of finance not only impacts on major strategies such as an acquisition, it also raises questions at a more micro level. For instance, is it better to expand the current and proven cash generating products and services or to invest in new products, services or technologies where there is no proven track record but where growth could be greater?

Access to additional finance

While the traditional sources of finance - venture capital funding; business angels; subsidised and guaranteed loans, overdraft and bank loans; factoring and invoice discounting or financing equipment – are to varying degrees under pressure.

Even those with finance arrangements in place are finding their banks and investors increasingly cautious about renewing and extending loans. These providers need convincing that the business is secure and that there is an accurate and robust forecast for sales and profits.

Cashflow management

However for lenders to be convinced that a business has a viable business plan and can truly generate the profits and grow as planned, they need to see that cashflow is tightly controlled and closely monitored. This means cashflow forecasts continually updated for a rolling twelve-month period. 

This is a far greater challenge in today’s climate as cashflow shortfall is often exacerbated by late payments from customers. Indeed today, the average small business is currently owed £30k(2) reflecting the serious threat it presents to growth plans.

To avoid this, businesses need to keep on track with their payments and to chase payments early to avoid any shortfalls. Clear terms and conditions for payments and credit agreements are also essential.

Controlling overheads

One way of improving cashflow, and indeed creating investment funds from within the business, is by growing the turnover and tightening the costs. However cost reduction is littered with potential pitfalls too. There is the real risk that businesses cut something for a short term gain but jeopardise long term growth in the process.

For example, marketing is often an easy place to make a quick high impact saving. However it is often argued that maintaining marketing spend is important to retain and build the brand. This puts the business in a stronger position to seize opportunities from competitors, that have not followed the same approach and so have a lower market presence and brand value.

Training is another area that appears to be a real opportunity to make cost savings, but where the saving may have a direct impact on growth. For instance if training is cut back in a way which leaves the business unprepared and employees under skilled to do the jobs that the growing business needs, growth will be stunted. So cost cutting must be completed with the whole business picture clearly in view.

Retaining employees

Staying on the people theme for a moment, a potential source of growth is from new products, services or technologies. Indeed 26% of respondents in our survey said growth would come from a new product or service; 9% said new distribution channels would deliver business expansion and 7% said a new technology presented a real growth opportunity over the coming year.

When you peel away at these ideas you often find that they have come from employees. This means retaining, rewarding and motivating staff is a crucial determinant of business growth.

Employees that are engaged in the business and understand its vision are far more likely to think outside of the day to day, and to spot relevant new opportunities for growth. So the challenge is to provide an encouraging environment in which employees feel confident to share their ideas. They need to know they will be forgiven if their idea isn’t a good one – something that is easier said than done when the economic climate itself is so unforgiving.

Winning and retaining customers

If businesses are to grow, they need to not only to retain and expand their business with existing customers, but also to attract new ones. Prospects need to feel confident that the business is better than their existing supplier and it’s worth taking the risk of trying someone new. However at times of low consumer confidence, risk is not something people are comfortable with. No wonder therefore that in our survey 19% of entrepreneurs said that a lack of consumer confidence is a barrier to success for them.  

So to combat this businesses need to make sure their market proposition is really clear and that they are operating at the top of their game in terms of customer service and value – all things which can come under pressure when cuts are being implemented. 

Of course, one company’s customer is another’s prospect. So while building up the base of new customers, companies must ensure that old customers are not walking out the door or even considering looking elsewhere. That means focusing on retention, adding on new services, focusing on the critical non essentials that keep customers happy – as a happy customer not only stays with your business but is also far more likely to recommend you to a friend or colleague.

Managing risk

A lack of consumer confidence has repercussions beyond the customer base. It impacts on the mood of investors who feel less confident about forecasts and therefore become more risk averse. A key way to combat this (and to minimise the risks) is to carry out frequent robust and honest risk assessments. You identify what the risks are, their probability of occurrence and the potential impact on the business should the worst happen.
 
Clearly some risks are out of an owner’s control, however where factors are known, for example the forthcoming VAT increase, businesses can respond and prepare accordingly. Investors are far more likely to have confidence in the business and its forecasts if they feel it has a real handle on the risks and is prepared for them.

Steel a march on competitors

There is no doubt that in today’s tough climate there are opportunities to steal a march on competitors, to acquire those who are weak or out gun those who are contracting. However to be the business with the upper hand you must be prepared for the barriers to growth which are many, varied and often interwoven.

About Melissa Grafton

She is also a specialist at market research and competitor analysis. Melissa has over 20 years’ business experience, helping business leaders to improve their planning and focus on profitability. She has worked in a range of sectors including healthcare, pharmaceuticals, financial services and automotive with companies ranging from Siemens Healthcare Diagnostics and Tenet Group through to Moles Venues and Bayer Healthcare.

To find out how Andrum Consulting can help your business grow during the recession email Melissa Grafton melissa.grafton@andrum.co.uk call 44 (0) 20 7100 9776 or visit www.andrum.co.uk

Melissa Grafton, partner, Andrum Consulting

Melissa Grafton, partner, Andrum Consulting

A business analysis and business modelling specialist with an MA in Maths and Economics from Cambridge University, Melissa is an expert in using data to help identify business opportunities.

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