5 Growth Success Factors Your Business Must Have To Make More Money by BOSS Management Group

“5 Growth Success Factors Your Business Must Have To Make More Money” If you’re serious about growing your business into a valuable asset, make sure you don’t forget these 5 success factors!

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Table of Contents

So, You’d Be Happy With $1 Million? What Most Business Owners Fail To Consider...3 What Does It Take To Build A High-Value Business That Will Make More Money?.......5 2. Real Growth Potential..................................................................................................8 3. A Team That Executes Strategy & Delivers Results.................................................11 4. A Business Model That Uses Leverage.....................................................................13 5. A System To Focus On Priorities .............................................................................16 ............................................................................................................................................17 Setting Yourself Up For Success.......................................................................................18 Other Resources.................................................................................................................19 About BOSSMENTOR®...................................................................................................19 About Jenny Stilwell..........................................................................................................20

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So, You’d Be Happy With $1 Million? What Most Business Owners Fail To Consider A client of mine said to me not long ago that he wanted to sell his business in the not-toodistant future, make as much money as he could, and then move on to something else. “What’s your walk-away figure?” I asked him. I wanted to know if he’d given any consideration to how much he would need or want for himself, his family, their needs and their lifestyle. “$1,000,000”, he said. “That won’t go far!” I replied. I don’t know why, but $1million seems to be the ‘automatic’ number that many people say they’d sell their business for. For some, it’s an appropriate number; for others it would grossly undervalue the asset they’ve built. We worked on this over a couple of sessions and he eventually came up with the figure he would be happy to settle on for his business, if he were to sell it. The number was $5,000,000. He wanted to do that within 2 years. Now, here’s what he hadn’t considered. 1. His profit was about $150,000 at the time, which was 10% of his turnover of $1.5M. When you sell your business, one method to assess potential value is a multiple of EBIT (earnings, or profit, before interest and tax). You could typically command a multiple of around 3-4 times EBIT as a going rate. This is based on a really rough estimate and rule of thumb only and varies between businesses (because acquirers pay much higher multiples when the acquisition offers something they really want – a bit like paying over the market value for a property you just have to have...). In order to sell his business, in the future, for around $5million, he would need to grow the profit about 10 times to around $1.5million. At that point, his business may be valued to be worth a multiple of 3-4 times the profit – around $5million. 2. In order for the profit to be around $1.5million, based on profit being 10% of revenue, the revenue would need to be $15million, roughly. That being said, he would need to grow the business ten times from $1.5million to $15million. It had taken him 6 years to go from startup to $1.5million. Could he grow his business by another $13.5million in 2 years? Not likely. The timeframe and the rate of growth were both completely unrealistic for his business.

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The outcome of this discussion was that we adjusted the timeframe out to 5 years, and worked backward to set clear revenue goals, and profit improvement targets. Our ultimate goal was to grow the profit ratio from 10-20% during the next 5 years, and grow his revenue during that time to a target of $8million. Since he’s only 35, these goals represent a more achievable and realistic target for him, and one he can now focus on with clarity and certainty. So, the first thing he didn’t consider was the reality of the numbers and the timeframe involved. He also hadn’t considered what would actually make his business valuable to a potential acquirer, and to himself in the meantime! By working through the key things he needed to focus on to build value and growth in the company, he was able to identify and better understand where the intellectual property was in the business, how he could best get leverage for growth, and how he could restructure the business to ultimately improve his profit ratio. This happens all the time, in my experience as both a business advisor, working with clients to increase the value and growth in their businesses, and as a person who has had considerable corporate experience at a CEO level in assessing potential acquisition targets. Building a business is hard work, and we all want to maximize our returns while we have the business, and if or when we decide to sell all or part of our share in it. Why not start the way you plan to finish? Focus on the way to best get the most value into your business now, and out of your business in the future. There are many, many ways to grow a successful and valuable company, but focus on 5 of the key success factors explained here, and go for it!

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What Does It Take To Build A High-Value Business That Will Make More Money? Are you building your business to ultimately sell it one day, or do you have plans to do an IPO (Initial Public Offer), or do you want to attract some investors, or do you think an injection of capital from your own resources is a more likely scenario? Maybe you’re at the stage where you just need growth so you can get to a more sustainable level. Whatever you plan to do with your business, I’m assuming you want it to be profitable. I’m also assuming you don’t want to be tied to it for the rest of your life either. If, like most of my clients, you want to have a life and a lifestyle from your business, we need to make sure it is profitable, and sustainable without your presence 24x7. A high value business is going to make you more money, both now, and in the future if you decide to sell out. There are many criteria that makes a business ‘high value’, but here are a few of the really important ones that you need to focus on when developing the growth strategy for your business. When investors assess acquisitions, or lending institutions assess the viability of loans, or a potential acquirer assesses the value of your business one day, they all want to see the same things. From a business valuation perspective, there are a number of factors which will influence the value of your business, some of those being: • Earnings track record – that is, the ability to deliver sustained financial performance • Industry growth • Competitive marketplace & your share of the market • Customer value, acquisition and retention • Product/service attractiveness • Ease of operation of your business – inbuilt procedures and systems • People – employees, owners, managers • Location • Assets It will be far easier to start focusing on those influencers of business value now, than further down the track when you are thinking of selling your business, or a share of it to an investor. Outside of the financial drivers, which provide the scorecard for how well your business is performing, there are really 5 key factors which are critical for your business to have, in order to make more money on your behalf.

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A Vision

If I asked you to describe your business vision to me, could you do it? I’m not talking about what you wish for, or what you think would be nice to have, do or achieve, but what can you see? What are you moving towards? Your vision for your business needs to be as clear as if you were watching a movie – what can you see, what can you hear, how does it make you feel, who else is in the picture. You get the drift. Bill Gates’ infamous visionary goal was to have a computer on every desk. He didn’t specify on every ‘office’ desk, he didn’t specify ‘business’ computer, and he didn’t specify any market segments. His single-minded focus has made this seemingly impossible vision a reality. The clearer your vision, the more it resonates with how you feel, the more likely you are to realize it.

“Our aspirations are our possibilities.” Samuel Johnson As the owner of your business you are fortunate to be able to create your own vision, rather than buy in to someone else’s. Think of the very best of how you would like to work, and how that ties in with how you like to live and what outcomes would make you happy. Make that your vision. The golden rule for your vision is that is must engage you emotionally – it must excite you. There are many reasons why having a vision is so important: -

A clear and compelling vision gives you very clear focus

you will continue to get caught in an opportunistic approach to growth and end up where the market has taken you, and not necessarily where you want to be. Opportunities arise in business everywhere, and should be seized, but only if they fit with the overall vision for what you are building. The vision will help you qualify which opportunities to go after, and which ones to let go by.

having a vision is like having a story and a picture – when your team can tune in to that as well, they can also work toward achieving that vision with you

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a vision is also a recruitment tool to help you attract the right people with the right attitude – if they can engage with your vision they will want to work with you toward achieving it

if you can’t see where you’re going and what it will be like when you get there, what’s the point of all the activity year in and year out? A vision gives purpose to your activities and time spent on building the business.

A vision is like an anchor – it keeps you on track when you wander away. A good vision is a constant guiding reference for you and anyone who is closely related to your business.

It keeps you excited about what you can create for the future

A powerful vision will influence your decisions and your behaviours to propel you toward achievement of that vision.

One final word on vision. A client of mine has been building his business for several years now, and until recently has not given a lot of thought to what his vision really is. I think he intuitively knew, but it took some persuasion on my part to help him finally articulate it! Since then, the turnaround in that business, and in my client, has been quite amazing. His focus has changed, his behaviour has changed, the sorts of contacts he is meeting with have changed, and seeing the opportunities which are now unfolding on a weekly (if not daily) basis for his business growth potential is quite amazing. A few weeks ago he was operating on a national level; now we are talking about global distribution. Not only does he look so much happier and excited about the business and where it’s going, but his team has also embraced the vision and is just as excited about what their roles are going to be. He recently commented to me that he’s never had such clarity in his business, and never been more excited about it. That’s what a great vision can do!

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Real Growth Potential Does your business have real growth potential? How do you find the answer to this question? •

Organic growth, usually based on assumptions in revenue increases, and leverage from the existing business model, is valuable if the market indicators show a trend for continued expansion.

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As long as the organisation continues to deliver results, and as long as there is still growth in the overall market space, this kind of more predictable growth is good.

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More exciting growth may be deliberately created, such as when one company acquires another, or it may come from an unpredictable opportunity (such as the 3M corporation accidentally creating the first Sticky Notes product)

The creation of real market growth potential can come when you: 1. Get in early to a growing market eg: mortgage choice brokers 2. Take market share from incumbent suppliers eg: B2B (Dell), B2C (Pepsi) 3. Duplicate your business model eg: Franchise, license, new markets 4. Identify & own a niche eg: Apple Mac – schools, designers, iPods 5. Develop demonstrable growth paths for customers/clients eg: Banks – cards, savings accounts, business accounts, mortgages, loans, overdrafts, second cards, etc etc. 6. Expand your market (scope) – Market diversification (eg: Coca-Cola Amatil’s expansion into beer) I have conducted strategic due diligence for many businesses (I’m not referring to large corporations but medium sized and smaller concerns), and while the lawyers and accountants are dissecting the numbers, risks, assets and compliance aspects, it never fails to amaze me how the real growth potential of the business is often overestimated or even overlooked.

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Real growth potential comes from leverage and being prepared. It doesn’t come from blind faith, shoddy numbers, or a lack of understanding or the market or true capabilities of your business. You have some examples above, which apply to any business, but to achieve this potential you need to really know about: your customers/clients and how you can help/engage/excite them your competitors and the market – what are they doing, who are they doing it for, and what changes are taking place; do they have your customers? your business –how well do you do what you do, and how much better could it be where is your growth coming from – can you demonstrate how you know?

What Gives a Business Real Growth Potential? Growth potential comes from within many areas. Three important ones are: Products • iPods and new product applications • Sticky Notes • Disposable razors • Travel cases on wheels New technologies create new products – eg: digital technology – CDs & DVDs compared to tape. Innovation creates new products – iPods, and mistakes can create innovative new products too – eg: Sticky Notes. New product innovation and technologies such as those mentioned above are often the result of large corporate budgets and research teams. They can take companies into unprecedented levels of growth and huge growth potential. On a smaller scale, your product portfolio can also represent great potential for growth, as long as you manage it well. Factors which determine whether your product or services have any real growth potential include: -

sales figures – product performance servicing and support costs margins competitiveness in the market system for creating new products/services trademarks & intellectual property

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Clients I read recently that Amazon’s client base is worth something like $30M. I would have thought it were more. Who else could find such value in that customer database? It’s sort of a rhetorical question, because the possibilities are endless. And that represents enormous growth potential. A good client base can add enormous value to your business, obviously now, and later should you decide to sell. It is definitely worth looking after, and you need to understand the customer data that you have now, and that you can collect. I have had clients who have hundreds of customers, many of whom are left to fall into the ‘inactive’ category. Assets left to depreciate. Look at your own client base the same way. Important indicators include: -

number of clients/customers in database as leverage for growth opportunity to grow value of clients good tenure/low churn/retention accurate database acquisition rates – demonstrated ability to acquire new customers

Channels If you have great products but no-one to sell them, that model isn’t going anywhere! There are many different distribution models you could employ for your business, whether you sell products or services, and the model you employ will determine how wide your market reach is and therefore how much growth potential it will provide for your business. Your channels may be direct – salespeople you directly employ who sell directly to your customers – or indirect, such as a retailer selling your products to a consumer. There’s more on models in Chapter 4. A very quick checklist as to whether your channels are providing growth potential for your business is: -

strong performing distribution channels channels provide leverage for new products/services strong relationships with channels exclusivity channel agreements in place

There are many other considerations when building real value into your business, such as whether or not the market segment you are in is growing, or whether you have a strong position within that niche, but if you at least focus on these areas you will be growing real value in your business today, as well as for the future.

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A Team That Executes Strategy & Delivers Results •

A team that delivers is one that can execute the business strategy and take the company closer to its vision.

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There are many models of leadership, team empowerment and motivation, and creating high performance teams.

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The 3C model is one which advocates that leaders need to Challenge their team, build Confidence, and Coach them. I would add a fourth ‘C’ – Culture.

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In order to challenge them you need to know their profile and what motivates them

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Confidence builds through recognition, rewards and career development (if your business is small and doesn’t have an upward hierarchy per se, career development can also be provided horizontally through expansion of roles and scope of responsibility)

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Coaching requires communication, clear roles, common vision and objectives, and feedback. A statement of the obvious but I’ve seen many business owners dissatisfied with the performance of someone in their team, and yet the person can be floundering because the CEO has not lived up to their end of the coaching ‘deal’. It’s tough when you’re busy, but regular one-on-one meetings can serve this purpose perfectly.

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Building a Culture which attracts the right sort of people to your organisation is also important.

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People that are like rust in an engine have to go. I always ask my clients this one question when they’re deliberating over whether they should give someone yet another chance: o

“If you had the opportunity to employ that person again, knowing what you now know about their performance, would you offer them the job?”

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One high performer is usually worth two or three ‘patchy’ performers – keep that in mind too! These people can sabotage a great team, and at the very least, it doesn’t reflect well on you to keep poor people when your culture is meant to be all about great performers.

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Bonus systems that reward the team for company achievements as well as individual performance means everyone is in it together

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From time to time ask your team for feedback on the company and its business operations and opportunities as a whole, and value and action that feedback where appropriate.

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Attracting, inspiring, challenging and mentoring also have their roots in the vision a company has for its future, its purpose and its values. These are all fundamental foundations in building a team that can deliver results and build value into the organisation.

Just remember, the team can only execute strategy and deliver results if it has seen the vision for your organization, and embraced it. You all have to be on the same frequency, at least in varying strengths, to make it happen. Don’t underestimate the power that sharing your vision will have on the ultimate focus and performance of your team. Keep the ‘4Cs’ top of mind, and that will help keep you focused on what will get the best out of your team.

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A Business Model That Uses Leverage

What is your business model? There are a few different ways of looking at what sort of model you have for your business, but in terms of your business development strategy, these three categories will help you define how you want to work and what will help your business grow. The key is to gain leverage by focusing on where you are able to generate the greatest growth for your business, from the structure, assets or resources you have available to you. The following 3 questions address the fundamentals of how you will do business to create the greatest growth potential for your company. It is by no means inclusive but the purpose is to get you thinking about leverage. 1. Who buys your products/services? There are many models for your business to get its product/service into the hands of your ultimate consumer. Here are some: B2B – your Business sells its product/service to another Business that is the end user, for example a law firm that specialises in commercial law will be selling their services to other businesses; Intel sells its components to computer manufacturers and system integrators. B2C – your Business sells its products/services directly to Consumers – for example, retailers fall into this category (McDonalds, Sainsbury) These are the two broad categories, but when you consider that Business types vary (eg: Not for Profit, Government, membership-based associations, Public companies, Private companies, etc) you can see that how you conduct business with these different groups can vary significantly. 2. Who sells your products/services? When it comes to selling your products/services through a third party sales channel, there are many strategies to consider, for example you can:  licence your product/service (for example, your firm develops a specialist software program for screening candidates, and you let recruitment firms have access to it by paying you a licence fee. You still own the IP, but they can use it to add more value to their clients and can bundle it as part of a bigger service offering). Companies which develop intellectual property are suited to this strategy.

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 franchise your whole business offering – the ‘business in a box’ kind of system where your processes need to be the best thing in your business so you can package the model and sell to others for a premium. Franchise models were mostly based around products (Bakers Delight, McDonalds (again)), but are now increasingly service-based (real estate firms, Jim’s Mowing (and all the other Jim’s services), mobile dog grooming, and some professional services firms (accounting practices).  incent a sales channel with a commission – if you don’t want to employ a direct sales person because you don’t have the funding to do so, or because the product is untested in the market and you don’t want to make a commitment to sales resources, or you may know someone who is happy to sell your product/service on a commission basis, then this model could work for you. You don’t pay for the service until something is sold on your behalf.  offer a percentage margin on the total sale – this model is typically used in the computer industry, as an example. Think of all the resellers and distributors of IBM computer hardware and software – they take a percentage of all sales made, and will take a larger percentage the higher their sales volume.  Joint venture with a third party. In terms of a sales channel for your business, a JV arrangement would be when another business sells your product/service, for a commission, or a percentage, or a flat rate. This is a broad term that applies to some of the above models.  multi-level marketing sets up tiers of sales channels and is an industry in itself, and is typically used with products that can be sold directly to household users/consumers (eg: Nutrimetics, Tupperware, Avon, Amway). You need to be able to recruit multiple people – ‘feet in the street’ – to have this as your sales model. Your sales model could be based on having one channel sell for you, or many channels, depending on your product/service and your target market. A great sales channel strategy is what I call ‘the many through few’ – get many sales through managing just a few direct relationships. If you sell your products through distributors, agents or resellers, do a quick 80/20 analysis to see which ones are your best performers and where the ‘many’ sales come from the ‘few’. 3. How do you make money? An investment analyst asked me one day how the company I ran at the time made money. I explained where our product revenue came from, and how we generated revenue from services. In spite of my answer, he asked me to take him through the

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process and explain the points at which we made money, and what we were providing our clients at those different points. It was an interesting way of looking at the business model, and one I have used ever since. Value, and profit, is built into your business model at the points at which you can, and could, make money. Map out your process for how you deliver your product or service and how you follow up. Identify whether you are ‘leaving any money on the table’. For example, if your primary product is business accounting software, you generate revenue from sales of the product, probably on a per user licence fee basis. You could also be making money from: - support – ad hoc, for specified periods - training – user - training - administrator - training – train the trainer - training – refresher - software upgrades - training – on new upgrades - maintenance – ad hoc, annual fees - customization - reports - hardware sales - hardware upgrades - software sales – other applications - development - consulting – integration of systems When you identify where you make money throughout your actual product delivery and follow up process, you can assess how much you make by looking at packaging different processes and services together, and charging different price bundles and levels. You don’t have to do all these things yourself either, and these revenue generating activities don’t all have to be delivered face to face. Consider outsourcing models, contracting services, in-house specialists based on your company’s core expertise, remote and online delivery. Nike is a branding company that outsources all of its manufacturing and production functions; Dell is a customer service and logistics company – they don’t manufacture their own computers but instead focus on their company’s core competencies and outsource the rest. They get better at what they do, and let others do what they’re not first-rate at. That’s a leveraged business model in action.

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A System To Focus On Priorities

There are many ways to keep yourself on track, whether we’re talking about a business strategy, a fitness program, a set of personal goals, or anything at all that we want to achieve. When it comes to executing your business strategy, these are the simplest and best methods that work for me, and all my clients. Big Rocks Imagine you have some big rocks, some pebbles, some sand, and some water, and one large glass jar. First of all, put all your big rocks into the jar. There’s going to be gaps around those rocks, so you’ll still have room for the small pebbles – on they go! You could probably fit a bit more in that jar, so you fill up the extra space with sand. Finally, if you really want to make sure you’ve fitted in as much as you possibly can, you could add water to fill in any last little gaps and crevices of air. Done. Now, do that in reverse. You won’t be able to fit in the big rocks. The Big Rocks are your major projects or activities that will move your business forward. They aren’t your ‘To Do’ list, they are actions that align with your strategy and once complete, will result in your business moving closer toward the vision you have created for it. Steven Covey talked about Big Rocks. In a nutshell, the concept is this: if you don’t get the Big Rocks in first, you’ll never fit them in. Draw up a chart and identify your Big Rocks that need to be completed for each month as you move toward the next 12 months. Do them as a priority, otherwise you won’t fit them in! Accountability We all perform to much higher levels if we are held accountable. The US Marines conducted a study of retired Marines, and found their standards had fallen after a lifetime of living by them to such an intense level. No, it wasn’t because they were exhausted, it was because the accountability of their peer group had been removed. Other studies have shown that we tend to reflect the success, standards and performance of the 5 closes people we associate with. If you want to succeed, make yourself accountable. Make your team accountable. You could use any or all of these options: • •

one-on-one mentoring or coaching programs mastermind groups

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• • •

regular internal team meetings where everyone is held accountable to follow through on their allocated areas of responsibility hold quarterly review meetings with your team (either your own team or your virtual team of service providers) to stay on track with 12 month goals Board meetings – if you have a Board of Directors, or even an Advisory Board, make sure you have regular meetings at which you take and distribute the Minutes. It’s good corporate governance and evidence of a company which follows good management practices.

Management Reporting Make sure you get, and use, timely and accurate management reports. You need to be able to track the key indicators in your business, not just sales revenue, but other important indicators which will vary with different business models, but may include: • • • • • • • • •

net new customers per month average value of clients customer churn marketing activities ROI percentage of expenses to sales average revenue per employee net new subscribers per week/month average online sales value contribution per product or brand

These are just examples. If you don’t know what the right indicators and reports are for your business, ask your accountant, business advisor, mentor or coach, or your peers. These are just a few systems to keep you focused on the priorities that will make your business a more valuable asset now, and in the future.

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Setting Yourself Up For Success Take your business down the strategic path of your choice because it’s what you really want to do. Don’t just choose a strategy and pursue an opportunity because you can. If you have a disconnect between what you really want and what you think you should do, your heart will obey and you won’t follow the strategy outlined for your business. Set yourself up for success by aligning what your vision is for your life, with your business vision. Follow the first and the last of these 5 success factors – designing your vision for the future, and using a system or tools to keep you focused on priorities – and use these two to guide you and keep you moving toward what you want for yourself and the big picture of your life. Revisit your growth potential (products, client base and channels in particular) on a frequent basis and don’t neglect these key fundamental of your business. Don’t neglect your team, and try to spend time thinking about leverage and innovation and how it could lift your business to a whole new level of operation. Above all, do it because you love it and because it gives you fulfillment and enjoyment. I wish you success and happiness in your creation of a high value business!

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Other Resources Our website has a range of business information and resources, covering business growth, management and strategy. Our Free Resources area has articles, the BOSSMENTOR® Business newsletter archive, Business FAQ, the article archive, and links to useful sites. To get access to your free information go to: www.bossgroup.com.au .

About BOSSMENTOR® BOSSMENTOR® provides three fundamental levels of support for our clients: We help you develop the right strategy and structure for growth Our programs provide support & direction on a group or individual basis Free Resources to use in your business – via our programs, workshops, & website The BOSSMENTOR® Mastermind Program is for people with established companies who want the benefits of being part of a mastermind group. It offers like-minded business professionals a range of member benefits, which are both group-based and oneon-one, to support your business growth, hold you accountable, and expand your peer network and potential business opportunities. The BOSSMENTOR® Accelerate Business Growth Program is primarily for owners of service-based firms wanting to focus specifically on developing, packaging and pricing their services to generate higher levels of income and fast-track their client growth. Individual Strategic Mentoring is for business owners who want one-on-one advice to fast-track their business growth and add depth to their management expertise, regardless of the size of their company or its stage of growth. To enquire how you can enroll in one of our programs to get the support you need to take your business to the next level, email our Business Development Manager, Claire Jackson, at Claire@bossgroup.com.au . Alternatively, visit www.bossgroup.com.au/mentoring-programs for more detail on how we could help you with your business growth strategy.

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About Jenny Stilwell Jenny Stilwell is the Managing Director of BOSS Management Group and since 2001 has been helping her clients to significantly grow their businesses. She has been Chief Executive of a publicly listed company, held general management positions in large and medium sized companies, and started two of her own consulting companies. Jenny has a Bachelor of Commerce with a Commercial Law major, and a Bachelor of Arts with majors in French and German, both from the University of Melbourne. Jenny’s unusual combination of corporate credentials at a senior executive and CEO level, combined with her experience in setting up and growing her own consultancy practices, make her extremely well qualified to advise business owners in managing and growing their organisations into more valuable entities. Jenny can be contacted at jenny@bossgroup.com.au