Startups need to learn how to negotiate various ‘growth traps’
There are plenty of businesses being started across Australia every day. Most make it to revenue; many generate decent revenue; but an overwhelming majority hit significant growth pains. They get caught in what Business Growth Specialist, Mike Boorn Plener refers to as the ‘Growth Trap’.
The companies that are poised and ready for growth will reap the greatest benefit in the upcoming years. Below we look at some of the activities startups need to master so the growth trap does not choke progress.
Business growth is like a freight train – except you’re pushing it down the track with your bare hands and the help of a few friends. First and foremost, you need to come to terms with the fact that it’s hard work. You sweat. You feel like you’re going nowhere.
Eventually you get the train moving – your business is beginning to show results. At this stage you want to keep pushing, gain speed, let the train start rolling down the tracks. Even then, you don’t stop, just run as fast as you can and keep pushing.
As you move down the tracks, people come along and help the pushing. Your sales grow so you can buy more coal to fire up the engine. But you have to keep up that momentum.
Where so many businesses go wrong is the stop-start-stop-start. You build the momentum, then take a breather and lose that momentum. It’s like starting all over again.
You need to make sure that you test before you start. Do you have a team that can push, a product that sells, and a marketing machine that works? Many of these can be tested well before you really start by using online freelancers from sites like oDesk.com. Once you’re ready, be prepared for a marathon. That’s what it takes to start with momentum.
Most businesses need to watch the profitability gap. You may need to produce a certain number of widgets before manufacturing is viable. Or do a certain number of billable hours before it pays the office rent overheads.
As you expand it gets worse: You now need to hire staff to do more of what you do already, or to expand activities. What if it takes two months before a sales person is up to full steam? In the meantime you have to pay their base salary, while spending a significant part of your time with them. Sales will probably drop before they start going up.
Startups need to work out at what point they will need to add extra people so for every growth step along the way you know when you will be profitable. Constantly look for economies of scale and for ways of leveraging what you have already built.
One way to leverage this is by using platforms like oDesk.com to scale your headcount up and down as you need it. You should keep a relentless eye on revenue as your first measure, and then check that your margin is preserved as you expand.
Utilising online workers does not just save money because of the flexibility of scaling hours, it also saves money by way of not having to invest in physical office space and equipment straight away, something that too often gets startup companies into big trouble.
3. The Marketing Machine
If you rely on traditional avenues of marketing, growth can be a challenge. The premise is that you have to keep pushing. Push new campaigns, push sales, and so forth. The moment you stop pushing, growth will wane. This is not ideal.
To create sustained growth you have to think of your marketing as a machine that keeps chugging along – just like that freight train.
Modern marketing requires an integrated approach. Social tools, digital marketing and traditional communications need to be integrated to ensure a consistent and positive customer experience. And it’s not enough to assume your audiences are not using digital technologies, or that you do not have the resources to sustain them
Joanne Jacobs, COO of 1000heads says, “A common mistake of businesses today is that they measure audience volume and eyeballs across marketing activities rather than customer actions. This has long been a problem of measuring the wrong things, but it is only now that customers are using these social and mobile tools that the true value of an integrated approach to marketing is being questioned.
Can you do 50 percent more revenue with the same team? If not, find out how you can. One of the key hindrances of growth is when you can’t expand the organisation to match the growth you need. Bringing new team members on board is expensive and takes time. Generally, it takes a while before a new team member is fully up to speed.
Neil Livingstone from CFO Advisory provides another example – Wink Models. He says, “This is a talent management business, and what they’re running is like a booking platform. A modelling business is surprisingly intensive on the administration side.
“So they are developing an app that models use to clock on and clock off. Through the app they do all interactions, like booking email confirmations, locations info, what to wear, billings and more. It used to take 40 minutes to process one model’s payment, it now takes less than five minutes”.
“The whole idea is they can take on significantly more business without getting more staff, processing a much higher volume of bookings without the current high administrative and labour cost. And as a potentially significant secondary revenue stream they’re now looking at selling the app to other agencies.”
Startups need systems, and this is where freelancers from sites like oDesk.com can help.
Want to count more revenue? Count it more often! If you report monthly, start reporting weekly. If you report weekly, start reporting daily. If you’re not reporting on revenue, start.
The rationale is simple: If your sales are sagging (your second indicator of growth – the first one is orders / commitments) you need to know sooner rather than later. If, after the first week of a month, you see you’re behind, you still have three weeks to catch up. If you report at the end of the month, well, it’s hard to catch up on that month.
You have to know what the key drivers for your growth are, so you can report on them. For example if you run a retail operation, counting how many people come through the door is hugely important.
Smart business owners use technology to automatically track store traffic on an hourly basis using that information to correlate to revenue, checking sales conversion of each store staff, and even seeing where they may need to roster additional staff for peak periods.