Managing Business Growth Article

Strategies for Effectively Managing Business Growth

This article picks up where we left off in the ABC Business Consulting Article on Small Business Success and Failure. Having identified why some small businesses succeed and others fail, we will take this concept a step further about what you can do to successfully manage and grow your small business. The Small Business Success and Failure Article established that effective planning provides the foundation from which to start and/or expand a business. With a Business Plan in hand and its implementation into the business successful, we will provide strategies in this article how to grow a young venture, as well as discuss effective management strategies to employ for maturing companies.

Managing the New Small Business

• Overview

A young business is characterized as being a “venture” and entrepreneurial” in nature. To take a viable venture and make it a growing concern, the entrepreneur must employ effective management strategies. Without effective management, a young business venture cannot become a successful early stage company no matter how exceptional the entrepreneurial concept, how much funding in its coffers, how exceptional its products/ services or how great the market demand is for them. It takes effective Strategic Management for a company to become successful and grow. In this article we will provide some strategies to employ in order to increase your small business’s success, whether it is a fledgling venture or a growing young business. In our opinion, this is the foundation to successful Strategic Management and should be part of any small business operation, no matter its growth stage.

• Market Driven

• By not being completely focused on a defined market, market segments and market niches, a young venture opens the door for competitors to invade its market and take share.
• Competitive Edge can only be maintained if you understand the trends happening in your market on the customer level. What many young companies commonly mistake is the concept that a product and service is defined by the customer, not the Company. Product Development and Marketing should be customer-centric.
• The function of a Marketing Plan is to perform in depth analysis of the market to determine what customers need and want. A venture may have an idea how to market its products and services but after performing in depth, customer level market analysis, it often finds different markets, different used and requirements then originally envisioned. A good Marketing Plan has a system to define and examine market segments and niches so an entrepreneur’s “assumptions” can be verified and, most importantly, challenged.
• It is not unusual for a venture to determine that it needs changes to its products and services because its Market Analysis found its assumptions unsustainable or uncompetitive, as well as, identifying other market niches not originally planned for.
• However, market focus does not stop there. In fact, it is just beginning because a venture must be continually analyzing market trends and be carefully listening to its customers, so it can anticipate changes in the market in time to adapt and keep its competitive edge. A new venture should spend a lot of time out in its market place, with its salespeople and customers, to understand future market trends. This is what good Market Planning and Strategic Marketing accomplishes.
• Resource: For a Step by Step Guide & Workbook on creating an Effective Marketing Plan, please consider our E-book: The Comprehensive Business Planning Workbook- A Step by Step Guide to Effective Business Planning.

• Accurate Financial Forecasting

• For a fast growing, young, small business, inadequate financial focus, analysis, planning and policies are a kiss of death. Many young companies focus primarily on Profits when they should be concerned with Cash Flow, Capital Management and Budget Control Systems. Without these three components, profit and loss projections are baseless as over time issues compound within these neglected areas, causing profits to ultimately decline.
• Cash Flow:

As we pointed out in our article on Cash Flow Management, sustainable profits come from good Cash Flow Analysis, Cash Flow Budgeting and Forecasting, and Cash Flow Management.

• At any point in time a growing company should know 12 months in advance how much cash is required to sustain its Business Plan. This gives a growth company time to generate cash, as well as, raise the necessary capital to sustain growth and profits.
• A growing venture needs to generate contingency cash in its Cash Flow Budget, along with retaining consistent earnings over time and having credit facilities available to seize market opportunities as they present.

• Capital Management:

The well known business guru, Peter Drucker, maintains a new venture outgrows its capital structure in every 40-50% sales increase, necessitating changes to its Capital / Finance Strategy.

• As a company projects its Cash Flow Budget forward 12 months, one of the important components of this process is determining how much cash the Company will have on hand at the end of the period, what finance facility is in place to make up the necessary deficit in cash needs and ask the question of whether a different capital facility is necessary to continue.
• A Company’s Financial Strategy is intractably linked to its Cash Flow Management and completely necessary to define in order to sustain growth from one period to the next.

Resource: Please visit Business Finance Tips for comprehensive articles on Capital Planning, Management, Strategies and Acquisition.

• Control Systems:

With effective Cash Flow Forecasting, Budgeting and Management in place, along with an established Capital Management Plan, a growing company needs excellent Control Systems in place to manage costs, which as we indicated in our Cash Flow Management article, is an important element in Cash Flow Budgeting. This Control System is also a part of a Company’s Profit Analysis when “controlling” and examining certain expense areas, such as, payables, inventory, production, administration, service and distribution. Profit Analysis & Cash Flow Analysis should be linked, understanding the relationships between cash generation, profits and expenses.

• As a Company grows, it is important the Control Systems grow with it, making changes as needed, just like with the needed changes in the Capital Strategy (as previously discussed).
• It is critical to prioritize essential Control areas to the particular business. Areas to consider and prioritize include Product Quality, Service, Receivables Management, Overhead, Inventory Planning, Production Costs, among others, depending on the type of business.
• Control Mechanisms need to be forward-looking as you can’t control past expenses and profit zones. They can provide valuable clues but more important is focusing on Control features into the future. As you plan advance Cash Flows, Control Planning should piggy back.

• Market Planning & Strategic Planning:

Accurate, realistic Financial Forecasting must come from good processes in Market Analysis, Marketing Strategies and Strategic Planning.

• An accurate Market Analysis with good realistic information on the market segments and niches paves the way toward successful, believable and realistic Financial Forecasts.
• Good market analysis produces an effective, forward-looking Marketing Strategy, which is implemented through a company’s Strategic Plan.
• A Company’s Strategic Plan does many things:

• Implement Controls
• Link Marketing information to Financial Forecasts
• Establish clear Competitive Edge
• Analyzes Risks & Threats
• Produces Budgets and Sales Forecasts

In other words, the Strategic Plan is the essential process to effectively produce solid and accurate Cash Flow and Sales Forecasts, including Controls, which result in successful Cash Flow Management and Profitability. The important point to understand, accurate Financial Forecasting, and all that it encompasses, is a relationship process and speaks to a Company’s Business Plan Development & Implementation Process, System and Structure.

Resource: Please refer to our Comprehensive Business Planning Guide & Workbook for a step by step process in developing the necessary elements of a successful Business Plan.

• Effective Management Structure & Resources

• It is important to plan well in advance, what management needs to be in place as a company grows and succeeds. When the company is young and small, it can be managed by a couple people. However, as the company rapidly grows, it is very important to have a solid management team in place. Otherwise, all that growth can cause severe problems if not managed effectively.
• As a Business Consultant, when I work with a small company in developing their Business Plan, I put a lot of emphasis on identifying management gaps and analyzing future staffing needs. In fact, there are two sections of the Business Plan format I recommend which emphasizes this key success factor: the Company and Management/ Operations sections. You may have great products and services, along with a well-defined market niche; however, without the right people in place to carry out the Company’s Strategic Plan, then sustained growth, expansion and profitability become impossible to obtain, as well as, maintain.
• It is important to note that Management is a two-prong concern for young companies:

• Management Structure: A company needs a well designed and implemented structure in advance of high growth potential, so a company can properly manage its assets, products, quality assurance, customers, sales people, financial planning, market trends and all the other numerous variables which need attention for sustained growth and profitability. The Management Structure needs to include both Upper Level Management Planning, as well as, Mid-Level Management. It is vital there is clear Strategic Direction and Communication Top-Down and Bottom-Up throughout the organization in order to successfully grow and sustain an enterprise’s success.
• Management Resources: Having the right people in a company is the second prong in the Management equation. Recruiting and retaining the right experience and talent for a Company’s future growth plans and present sustainability is the single most important planning element for a company. Experience is absolutely vital when a young company is growing rapidly, by leaps and bounds, to ensure the success is not short-lived and to manage the growing assets of the company. Just as a growing company needs competent Management, it is Management’s responsibility to ensure the Company recruits skilled labor and has effective training programs in place.

• I can’t stress enough, as a Business Consultant and Entrepreneur for more than 20 years, that the Management Equation or Factor for a Company needs to be developed and implemented through its Comprehensive Business Plan. Without the right people in Management, a company cannot effectively plan and implement Product Development, Quality Assurance, Competitive Edge; Market Analysis, Research, Planning and Strategy; Strategic Planning and Sales Programs; and Financial Analysis, Modeling, Forecasting and Strategies. It is a cause and effect relationship, which can quickly implode (or explode) without proper leadership and management. This is why the first two sections of the Business Plan Format I recommend to clients are the sections on the Company and Management/ Operations. With these two sections planned for and put in place, the subsequent planning and execution of the Market Analysis and Marketing Plan, Strategic & Sales Plan and the Financial Analysis, Forecasting and Strategy can be successfully implemented and subsequent profitability maintained.

• The most important element for a young growing company to have in place is its Management Structure and Plan. Well in advance of certain growth milestones, it is important to have the right management team in place with the right mix of experience and skills- what we call Management Resources. Young Companies may face challenges in recruiting and retaining top management talent and key employees as initial cash flows in the early stages of growth may not support competitive salaries. To this end, please see our article on Compensation Planning for ways to attract and retain talent without breaking the bank.
• Where does the entrepreneur/ founder fit in a growing company with an expanding management team? The original entrepreneur(s) and founder(s) must analyze where they best fit in a growing, changing company, and how they can best contribute. This is important to define and plan for in advance, just as Management Planning defines areas of responsibility. The entrepreneur must learn to delegate responsibilities to his Management Team and learn to be catalyst for the Company’s Strategic Plan. No more is the entrepreneur the Manager; rather, he is an executive, the CEO, responsible for the overall goals, objectives and growth of the enterprise, leaving the day to day management to his capable Management Team. It is important that the Company’s Strategic Plan has clear communication channels established between the CEO and top management, who in turn, ensure mid-level managers and their employees carry out the Company’s Strategic & Sales Plan. This does not mean the entrepreneur should be cut off from his people- just the opposite. The CEO should frequently spend time with employees at all levels, motivating, encouraging and praising them. Employees should know the CEO is genuinely concerned about their professional and personal happiness. Leave the managing to the managers, giving the CEO the important roles of overall Strategic Direction and Employee Satisfaction.

Resources for more information on Management and the CEO:

Small Business Recession Tactics

Small Business Success & Failure

Leadership Qualities of the CEO

Managing the Maturing Small Business

• Overview

As a company grows and matures, other factors in its successful management and growth become important. We will analyze a Company’s Growth Stages and identify common issues, success factors and problems for each particular stage; identify Management Considerations and Challenges as the company grows and matures; and consider Future Planning Requirements. As a Company grows and matures, it is important the organization understands how to plan effectively for new challenges, issues, markets and problems.

• Small Business Growth Stages

• Basic Existence Stage:

• Main Issues & Characteristics:

• Obtaining Customers
• Delivering the product and service
• Viable Services
• Expand from key customers to broader sales base
• Have enough Cash on Hand to cover Cash Flow demands
• Owner performs all Management functions
• Often a lack of Planning & Systems
• Business just trying to remain viable
• Have yet to stabilize production or product quality
• Trying to gain sufficient customer acceptance
• Business has strong demand on the Owner’s time, cash and energy

• Survival Mode Stage:

• Main Issues & Characteristics:

• Business demonstrates viability as business entity
• Satisfies a base of customers
• Focus shifts from existence to managing Cash Flow
• Generate enough Cash Flow to break even, stay in business and finance growth
• Focus on Market Niche exploitation
• Simple organization and the owner begins to delegate to a manger. However, strong direction and control still rests with the Owner.
• Planning concentrates on Cash Flow Forecasting
• Systems development & implementation in early stages.

• Obtaining Success Stage:

• Main Issues & Characteristics:

• Exploits its Market Niche
• Obtain Strategic goals
• Expansions is important but stability, control and profitability are key as well
• Owner’s Options:

• Expand and Grow the business
• Maintain Stability as a means of support to the owner
• Owner considers disengagement from the business

• Market penetration
• Competitive Edge
• Functional Management & Owner Delegation
• Management & Key Employee Competence
• Generating sufficient Cash Flow
• Planning for rough patches
• Professional Staff: i.e. Controller, CFO, CEO
• Production/ Service, Marketing, Strategic and Financial Systems established
• Operational Budget Management
• Growth Strategy Options:

• Consolidate Company, develop efficiencies and marshal resources
• Use Retained Earnings and Cash Flow, leveraged with Finance, to grow the Company
• Cash Flow Management & Profitability are key concerns to finance growth goals
• Develop Key people and management
• Strong Operational & Strategic Planning
• Growth requires the owner’s deep involvement (verses disengagement)

• Rapid Growth Stage:

• Main Issues & Characteristics:

• Committed to a Growth Strategy
• Concerned with adequately financing the growth stage
• Need good ownership delegation to improve managerial effectiveness.
• Enterprise develops complexity. Performance Control Systems are important
• Established Expense and Budget Controls to maintain strong Cash Flow.
• Profitability Planning Systems are critically important
• Effective Financial Planning, Forecasting, Modeling and Strategy
• Very skilled, experienced and competent Management Structure
• Company systems are tested, adapted and highly delegated, but there is strong Strategic Leadership from Top Management
• Capacity to become a big business
• Strong Potential for Business Sale Premium
• Effective Delegation and reliance on talented Managers & Key Employees are keys to success
• Founding Entrepreneur(s) can opt out of business and have a more advisory role

• Maturity Stage:

• Main Interests & Characteristics:

• Consolidate and Control profits
• Retain advantage of relative small size, nimbleness and flexibility
• Quick market change response time
• Still retains the entrepreneurial spirit
• Growth causes inefficiencies so must ensure the Management Structure continues to grow and evolve. Strong Managerial Talent
• Strong Budget, Operational and Strategic Planning capability and focus
• MBO System (Management by Objectives)
• Cost Systems
• Extensive & well developed company systems and Management Structure
• Strong Financial Resources
• Convert Entrepreneurial spirit to a Formidable Market Force
• Strong Market Niches & Competitive Edge
• Exceptional Risk Management
• Profitability boosted by successful Innovation
• Strength in Market Branding & Recognition
• Maintain Competitive Edge by anticipating Market changes and adapting better and faster than competitors

• Management Considerations & Challenges

• Key Management Factors/ Areas: The following are areas which change in importance as a company develops and grows, which often determines the success or failure of the enterprise:

• Financial Strategy: Cash Flow and Finance
• Personnel Planning: Amount, Depth, Structure and Quality of Key People and Management
• System Integration: Product Development, Production Management, Cost Controls, Budgeting Systems, Marketing Systems, Quality Management, Customer Relations, Strategic Planning, Cash Flow Management, Profitability Analysis, Asset Management, and so forth.
• Business Resources: Customer Service, Market Share, Market Growth, Market Penetration, Market Trends, Supplier Relations, Manufacturing Processes, Facility Efficiencies & Expansions, Distribution Systems, Sales Management, Innovation, Technology, Industry & Market Positioning and Business Reputation.
• Company Goals & Objectives
• Operational Planning & Abilities
• Supply Chain Management
• Owners Willingness & Ability to Delegate
• Strategic Long-Term Outlook & Management

• The Role of Business Planning: A good Business Planning Structure will look at the mentioned factors (among others) and effectively plan, develop, install and implement systems and processes to manage and anticipate these challenges throughout the business enterprise. A company can grow, or for that matter, collapse, so quickly that it is very important to have Planning & Control Systems in place to manage all the numerous variables which a business encounters and considers. Therefore, as the business grows and changes, and as the markets and competitors change, the small business has established systems and resources in place to successfully handle and manage these changing forces and factors.

Resource: For more information on Business Planning Formats, Development, Implementation, Systems and Processes, please consider our Comprehensive Step by Step Business Planning Guide & Workbook.

• Future Planning

• Growth considerations:

• Does the business have the quality and diversity of experience and talent needed to effectively manage a growing company?
• Does the business have systems in place and in development to effectively handle the needs and demands of an expanding, diversifying enterprise?
• Do the entrepreneur/ owner/ founder(s) have the foresight, inclination and ability to delegate decision making to management?
• Does the business have the Cash and Finance structure, along with an understanding of the Risk Factors, to aggressively pursue rapid growth?

• Application

• In managing a growing, expanding and maturing Small Business, we presented a model by which to evaluate and plan for the current business situation and future concerns and challenges. By understanding the particular Growth Stage Characteristics and Issues, Management Considerations and Challenges, as well as, Future Growth Planning Considerations, a business can apply this planning format and model to anticipate problems and successfully sustain growth. This model should be an integral part of a Company’s Business Planning, Market Planning, Product Development Planning, Strategic Planning, Sales Planning and Financial Planning and Forecasting.

ABC Business Consulting Resource: Established Successful Systems are very attractive to entrepreneurs since Franchisers provide pre-set and pre-determined Marketing Plans, Control Systems, Standardized Operating Systems, Promotion, Branding, Start-Up Support, Site Location Services, Financing and so on. This eliminates a lot of but not all of; the planning and modeling a Company must perform to increase its chances of success. Please see our Article, Is Franchising Right for You? for a comprehensive analysis and vetting of Franchise Opportunities and Systems.

Conclusion

An imbalance of management factors and challenges can create serious problems for the entrepreneur and his/her growing enterprise. We illustrated how the problems faced and the respective skills necessary to effectively deal with challenges change and evolve as a company grows, expands, and seeks success. Therefore, it is vitally important for business owners to anticipate and strategically manage these factors as they become influential and important to the enterprise.

As we explained in this article on Small Business Growth Management Strategies, a company’s stage of development determines the managerial factors which are necessary and important. A Company’s Planning Structure is vitally crucial in determining which factors and issues must be faced and dealt with. Knowing its keys to success, development stage model and future planning needs, a company’s managers, entrepreneur, founders, executives, investors, advisors and consultants can make much more informed strategic decisions and plan for future challenges.

The Case for a Business Consultant

When an entrepreneur is starting and growing a company, it becomes vitally important from the outset to seek and obtain objective advice from experts. The Company Principals need expert advisors on their team to discuss decisions and obtain objective advice; challenge the founders’ venture needs appraisal; provide an honest appraisal of strengths and weaknesses; review decision making processes; identify survival tactics and needs; develop and implement a business plan, marketing plan, strategic plan, sales plan, and financial strategy; build market focus and niches; anticipate market trends; establish and sustain competitive edge; provide financial foresight and planning; focus on cost controls, budgeting procedures, cash flow management and maximizing profitability; along with obtaining the appropriate Financial Resources to augment self-investment and achieve growth goals and opportunities. In short, a Business Consultant, with an experienced track record, can fill this long requirement list, helping the entrepreneur and his or her advisory and management teams to successfully start, structure, plan, expand and profitably grow the enterprise.

For more information on how a Business Consultant can help your business, please visit our section on What does a Good Business Consultant Do? All About Business Consultants and Business Consulting.