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Growing Businesses Must Stay Focused To Advance to the 'Next Level' Expanding from a regional to a national focus can be a major stepping stone for successful entrepreneurs looking to take their business to that "next level." However, companies must follow a strategic approach to maintaining their focus during this critical growth phase or risk major harm to their business. Admittedly, entrepreneurs tend to be strong leaders when starting their ventures and in the early stages of growth. This attribute bodes well for them at the beginning. So, too, does their vision for the future and their ability to sell a given product or service effectively within a particular market or region. The fact that the corporate infrastructure of most small companies is generally easy to manage and control at the outset, along with the generally conservative investment in that infrastructure, also has a positive impact on entrepreneurial ventures during their infancy. Yet, despite their sales acumen, many entrepreneurs begin to lose control and make mistakes at the next critical stage. This is usually the point at which annual revenue is approaching $100 million, the employee ranks have begun to swell, and the company is on the verge of establishing a national presence or already has. Often, the drive to generate new sales is executed at the risk of maintaining and growing revenue with the core business. For example, the owners of one Clear Thinking Group client, a food processing company, opted against reinvesting money in state-of-the-art equipment to stay competitive in their core product categories, while expanding into other revenue-generating product lines. Principals of another client firm, a staffing company, focused on growing top-line revenue, but they never built up an adequate corporate infrastructure - namely, systems and personnel-to support that growth. In fact, by their own admission, many entrepreneurs lack the necessary managerial skills to handle successful growth execution. Those that run into difficulties desire sole control of their businesses and, in turn, tend to avoid nurturing teams of managers to support operational activities. They also lack organizational skills, causing many operational tasks to be performed inefficiently or ineffectively. Their excessive focus on sales leads to neglect of other critical areas, such as corporate infrastructure and personnel. Even more troubling in these cases is the absence of critical assets that foster operational growth. Information technology (IT) ranks among such assets. A dearth of IT systems for inventory control, planning and allocation, specialized invoice processing and the generation of internal reports can lead to loss of income.
INADEQUATE SYSTEMS Additionally, if systems are in place but are inadequate for the purpose of monitoring profitability, management is unable to properly gauge the effectiveness of the company's activities and, in turn, cannot implement strategies aimed at generating profits.Reversing those trends and moving successfully to the next phase necessitates taking several strategic steps. Assembling a management team with strong acumen in the areas of financial and operational controls is essential. Managers should have the commensurate experience and skill sets to support the goals and strategies of the company. For example, companies with plans to expand nationally or move into new territories or business lines must hire management-level personnel whose abilities and experience are commensurate with such plans. Similarly, entrepreneurs who expect their companies' revenues to reach a certain level or encompass new business segments should limit the pool of candidates to individuals who are capable of growing with the operation in question. In situations where strategies entail acquiring other entities in line with growth plans, CFOs and other executive managers should have the ability to analyze such activities and judge the subsequent impact on the organization.
That means holding regular meetings that involve individuals at every level of the organization, as well as supporting all employees at their respective levels and forging regular communication with and among personnel at various levels-especially during the critical early growth phase. Open communication is particularly important for young companies, which can and should rely on all employees to help foster growth and serve as their face. Communicating with field personnel affords companies a clearer understanding of the most basic layer of their business and permits them to refine their business models accordingly. For example, retailers can glean valuable point-of-sale information and/or customer feedback via email from store associates, then employ the data to adjust their merchandise mix or product lines to reflect customer demand. Further, concerted efforts must be made to control expenses along the way and to reinvest profits in growth-supporting IT systems, efficient equipment and machinery, as well as a strong employee infrastructure to ensure a sharper competitive edge. On the IT front, it is better to invest in complete, best-of-breed systems that are appropriate for the current business model and planned growth rather than to cut corners on scope and price. GARNER ACCEPTANCE It is also imperative to garner acceptance among system users. It is not uncommon for entrenched employees to avoid utilizing a new system for fear of not knowing how to use it and/or because they are reluctant to change the manner in which they do their job. Simply stated, training on any new system and companywide acceptance led by top management are the main prerequisites for successful IT implementation.As companies grow, they also confront competition as other entities determine that there is room for additional players in the market for the product or service being offered. In order to stay competitive and continue to grow, entrepreneurs who've followed the practices outlined above must continue to reinvest profits into maintaining a competitive infrastructure. This can come in the form of hiring key personnel to foster further growth, or perhaps in reinvesting in state-of -the art-equipment that helps produce product more efficiently. At the same time, it is important to avoid the brand of complacency that can cause business owners to cease following the practices that sparked their companies' success. My colleagues and I have even encountered situations in which companies' owners decided that they were entitled to take large sums of cash from their operations to reward themselves for success to date-to the detriment of losing focus on maintaining appropriate cash flow levels and profits to sustain future growth. Finally, entrepreneurs might consider retaining a third-party firm to position their companies for future expansion and better grapple with the challenges that accompany such growth. Specifically, they should seek out firms whose principals have a track record of working with small- to mid-sized entrepreneurial-driven businesses that have attained significant sales volumes but were not properly structured to generate commensurate profits.
Clearly, taking a growing business to that "next level" is not an easy endeavor for entrepreneurs. However, implementing strategies aimed at avoiding pitfalls leads to a smoother road ahead. Amir Zfira is a partner and managing director of Clear Thinking Group (www.clearthinkinggrp.com), a retailing/consumer products and industrial manufacturing consultancy headquartered in Hillsborough, N.J. He can be reached at 908-431-2121. |
