Managing one of the overlooked aspects of growth: business change
So, you’ve founded a company, managed to survive the first few start-up years and now employ a staff of around 20 people. The good news: you’ve come further than the average entrepreneur, who, statistics show, will start and crash out of multiple businesses before eventually achieving success (assuming they do, indeed, manage the feat).
But the greatest challenge at this point isn’t simply staying on a lucrative growth trajectory. It’s about change management, the one aspect of starting and growing a business that few entrepreneurs tend to consider.
The simple reason is because, at least in those early years, surviving from one month to the next is enough to keep any business owner/operator occupied. Factor in daunting tasks such as attracting and retaining new clients, and it’s easy to see why concerns over managing that change tend to fall by the wayside. But this is a major oversight that comes back to bite many CEOs. Every organization is dynamic—the leading ones even more so—and undergoes constant change. Mostly those shifts are subtle; picking up a new client here, adding a new product or service line there. In some cases, they can be dramatic, such as a major infusion of investment capital that takes an organization from a small shop to a large-sized firm able to compete globally, sometimes in just a handful of months.
Most leaders have an extraordinarily difficult time managing that change because: a) they simply aren’t trained to run a larger company and are forced to learn on the job, and b) they’re still too entangled in the daily minutiae of running the business to put a serious focus on its growth and the plethora of other issues that come with it, from managing financing issues to strategy.
This is an extremely important topic that often dictates the future of any enterprise, and it’s one that I’ll be covering in greater detail in the months ahead. But in this first installment on change management, I want to focus on five high-level operational considerations that every entrepreneur should be prepared to address as their organization grows and its needs shift.
Keeping your eye on these five factors could mean the difference between bottom-line success or failure:
Rely on grounded forecasting
Every entrepreneur is an optimist at heart. If not, they would never embark on the often tumultuous journey of starting and growing a business. Not surprisingly, many make grandiose assumptions about their revenue potential. ‘If I can just capture 1 per cent of my industry’s market share, I’ll be in great shape,’ is a harrowing refrain heard too often by accountants and business advisors, because achieving even that modest-seeming goal can be extremely difficult. Optimism is wonderful, but it must be tempered by realism. That means constantly re-evaluating risks and opportunities across your business, including assessing which profit centres should be carefully cultivated. It requires analysis of your marketplace and a search for vulnerabilities that your team can exploit, or areas of concern where they need to take action. It means being ready to evolve the business model, while keeping a close eye on important business metrics such as cash flow to ensure that you can actually afford to seize on those ever-tempting growth opportunities.
Analyze to remain competitive
Even if your organization reaches the pinnacle in its industry, there’s no guarantee that it will retain that place for long. From Nortel to Blackberry, there are no shortage of Canadian success stories that have succumbed to everything from lacklustre innovation to financial mismanagement, factors that precipitated their decline to irrelevance from sectoral domination. Staying on top—or at least managing to compete in your industry—requires keeping a close eye on competitors and making ongoing investments in areas such as new (or improved) systems and processes, as well as product and service improvements and innovations. Before your products near the end of their life cycle, for example, you should already have a replacement slate ready to go to market. If you sell services, be ready to constantly improve them to reinforce your competitive advantage in the marketplace.
Keep an eye (or two) on the books
The idea of maintaining strong cash flow is one that flummoxes many entrepreneurs, especially if they lack an accounting background. While your outstanding receivables may be substantial, they’re effectively worthless until that money is collected and deposited into an operating account. And even a single month or two with little or no cash flow can break a business. That’s why it’s so important to plan ahead, forecast future revenue accurately and have alternative funding sources such as lines of credit or even equity investments lined up in case cash flow runs dry. Keeping costs under control, while still pursuing growth opportunities, is a delicate balance, and one that can elude even the best-intentioned entrepreneur. Keep tabs on stock levels (if you sell products) and be prepared to sell at a discount when they run high, not to mention finding ways to shorten receivable timelines. Always be cognizant of customers or suppliers in financial distress. Obvious signs include drawn out payment terms and missed payments. And more than ever this is the time to rely on the expertise of your chartered professional accountant. More importantly, make sure he or she is equipped with the knowledge and expertise to handle your growing business.
The people who help you start and grow your business early on aren’t necessarily the ones who can continue fuelling its growth after the start-up phase. Even you, as the business owner, may fall into that category. That’s why it’s common for businesses to shuffle their employee rosters on a regular basis, especially when the organization experiences a period of change. At times it’s even advisable for a business founder to hand the reins to a more qualified CEO to manage day-to-day operations when the task becomes overly complex and requires a more advanced skill set. Whatever the specific circumstances facing your organization, be prepared to continually re-evaluate your team and make adjustments to ensure the right talent is in the right places and doing the right jobs at all times.
Implement new systems and embrace change
Just because you have systems in place that work well today, doesn’t mean they’ll be effective tomorrow. Everything from your mission-critical software to production equipment to employee policies and onboarding programs should be under constant scrutiny. If there are ways to improve these systems, don’t hesitate to take action. If some are outdated and need to be discarded altogether, do it. Many SMEs become hampered in old ways of doing business, only to watch their competitors leave them behind. Don’t find yourself in that precarious position.
Perhaps the greatest challenge of all is understanding that change needs to happen, then embracing it wholeheartedly. This is where great leaders make their money and build their legacies. Shepherding a business and its employees through a period of change takes strategic insights, careful planning and pinpoint execution.
And when they’re done right, effective, highly strategic changes can help a business survive virtually any challenge.
Hartley Cohen, Partner