THOMAS EDISON ONCE SAID, “Good fortune is what happens when opportunity meets planning.”
Consider how much planning it takes to commute from your office to your home on a clear Sunday afternoon. Not much, if any. You know the route from memory and Sunday afternoon traffic isn’t so bad. You could almost make the drive in your sleep.
Now consider how much planning and attention to detail is required to fly a private aircraft from here to a remote airport in rural Georgia. Different story, right? Do you have a pilot’s license? Have you ever flown to a remote rural airstrip in Georgia? For this trip, let’s assume your family is on board and your entire net worth is at risk for completing the flight safely.
With so much at stake, most of us would study, plan, plan again, and consider every possible contingency — weather, mechanical, refueling, route, etc. In short, we would plan for every contingency.
Given the risk and stakes involved, I would ensure I have a very capable co-pilot (who has accomplished similar flights before) in the event I need help along the way. I would learn the purpose of each of those airplane instruments and what they tell me — air speed, altitude, attitude, range, oil pressure, etc. I would plan out and monitor every step of the journey.
It’s no different when planning and managing a business in a period of rapid growth.
Everything is on the line. You simply have to plan. You should consider what might go wrong and what you will do in the event things aren’t going as originally intended. And remember those gauges on an airplane? You need the same for your business. You must measure and monitor your actual data to know if you are on course. You need an accurate dashboard that gives you timely information.
You should consider hiring a capable co-pilot or two (management team) who have been through a high-altitude environment before. Oh, and yes, realistic cash flow projections as well as a good banker to assure you have enough fuel to actually get to your destination.
Ultimately, a disciplined process of planning and regularly reviewing your execution of that plan will help you stay on a high-growth course. A business owner who can demonstrate a track record of planning the work and working the plan is much more likely to eventually get top dollar when exiting the business.
The keys to managing rapid growth
Orders have started pouring in. Revenue is skyrocketing. Your hard work and dedication are starting to pay off. Your business is growing. But growing your business isn’t the same as growing the value of your business. Top-line revenue growth doesn’t tell the whole story. Is the value of your business also growing, or are you just churning more dollars without a commensurate increase in profit, cash flow, and business value?
When growing rapidly, don’t overlook these six important value drivers common to all businesses, across all industries:
1. Stable, motivated management team
Consider two companies, identical in almost every way. They have the same revenue, are in the same industry, and the same geography. The difference is Company A relies on its owner to make all of the decisions. The owner of Company B, on the other hand, vacations six weeks each winter, plays 100 rounds of golf each year and goes fishing every weekend throughout the summer. Which company would you rather own?
2. Operating systems that improve sustainability of cash flow
It’s important to develop, document and continually improve business systems that generate recurring revenue. Even in periods of rapid growth, you must not lose focus on good systems and processes, including how customers are identified and retained, how products and services are produced and delivered and how employees produce intended business results.
3. Solid, diversified customer base
When growing quickly, pay attention to who your customers are and how much revenue each generates. As a general rule, no single customer should account for more than 10 percent of total sales.
4. Realistic growth strategy
How will you continue to grow? Saying that you plan to grow rapidly isn’t convincing to a banker, investor or buyer, unless it is tied to a realistic strategy. Strategies should be realistic and tied to industry dynamics, increased demand for your products, new products or new product lines, marketing plans, growth through acquisition and/or expansion into new territories. Commit your strategy to writing.
5. Effective financial controls
Financial controls are not only a critical element of business management, but also safeguarding the company’s assets. They are even more critical in the midst of chaos that comes with rapid growth. Good financial controls help businesses achieve consistent profitability.
Scalability is the capability of a system, network or process to handle a growing amount of work, or its potential to be enlarged in order to accommodate that growth. Companies in a rapid growth stage need to pay attention to their ability to “scale” and plan accordingly to ensure they have the people, materials, production, warehousing, financing and other critical processes and systems to accommodate the intended growth.
Cash flow is king (or queen)
Ultimately, it is the cash flow that determines the value of your business. Rapidly growing your revenue without a corresponding increase in cash flow is senseless. Churning greater and greater dollars without a similar rate of increase in cash flow is simply taking on significantly greater risk with no enhancement to the value of your business.
Plan, execute, and monitor
Just having a general idea in your mind about where you want your business to go is not a strategy. Good strategy defines, with specificity, what you want your business to achieve and what it should look like in one year, three years or even further out. The plan should include specific, measurable goals and you should have a process in place to monitor progress toward achieving them.
Tom Sidersis a partner with L. Harris Partners: 952.944.3303; firstname.lastname@example.org; www.lharrispartners.com.