Four Decisions: People, Strategy, Execution, Cash … My thoughts for fast growing firms.
Decisions Equal Success:
There are four decisions, in growing your business, that you must get right or risk leaving significant revenues, profits, and time on the table. These four decisions are in the areas of People, Strategy, Execution, and Cash. Even though most growth firms face continual challenges in all four areas, at any one time the challenges in one of these areas overshadows the rest. Therefore, your first decision to start 2009 is to choose which one of the four to focus on next.
People Decisions: In general, you know you have People challenges when you’re not enjoying running your company. You either have a partner issue, a customer with too large a piece of your business, a supplier delaying your success, a key employee or two that’s disrupting the rest of the organization’s effectiveness, or challenges at home. Or you might simply lack enough employees to serve your customers, though I caution executives to avoid tossing employees at problems. Until you settle these relationship issues, they’ll continue to consume a tremendous amount of emotional energy, making it difficult to focus on the other three main decisions. Focus on getting the right people doing the right things with clear accountabilities and metrics.
Strategy Decisions: Strategy challenges are indicated by a slowing in top line revenue growth. If revenue is not growing as quickly as you like, then it’s time to re-examine your strategy i.e. what you’re selling to whom. It’s important to have a concise articulation of that strategy so you can get everyone aligned and on the same page without wasting sales or operational energies on activities not useful to the business. Jim Collins, author of Good to Great, calls this precisely articulated strategy a company’s “hedgehog.” Alan Rudy, founder of growth company incubator Into Great, calls it the “ping” of the business. Others call it a unique selling proposition (USP), differential advantage, or brand promise. Whatever you choose to call it, you know you’ve nailed it if revenues are growing as rapidly as you want.
Execution Decisions: Execution challenges surface when your increasing revenues are not generating increasing profits. I’ve seen many firms triple their revenue, because they have capitalized on a differential advantage, only to see their profitability drop because of the sloppiness of their execution. The other indication of poor execution is pure hours spent delivering your products or services. When execution is haphazard, the organization has to rely on the “heroics” of their people putting in incredible hours to just keep the wheels from falling off the organization. By simply tightening up your execution habits, you can dramatically improve gross margins and profitability while reducing the time it takes for everyone to complete their work.
Cash Decisions: And the last challenge is Cash. The first law of entrepreneurial gravity is “Growth Sucks Cash.” We encourage companies to calculate their Cash Conversion Cycle (CCC) which measures companywide how long it takes between when you spend a dollar (marketing, design, rent, wages, etc.) until you get that dollar back. I suggest executives read Neil Churchill’s famous Harvard Business Review article entitled “How Fast Can Your Company Afford to Grow” which provides the formulas for calculating your cash conversion cycle