In Business Growth is not always Good Growth!

Advice for business owners and leaders by Richard Gourlay

In Business Growth is not always Good Growth!

Business Growth is not always Good Growth, it can be Bad!

For every business owner growth is the ultimate measure of success, except it isn’t! Not all growth is good growth, and bad growth can have significant negative consequences. 

Growth is seen as THE measure of success in business. Leaders are measured by what they deliver in results, and growth is the simplest measurement to communicate. Headline results of increased turnover are always eye-catching news but may not be good growth.  Turnover, for turnovers sake, is often the most dangerous result a leader can deliver.  Growth sounds like a good result but not all growth is good. 

When growth at any cost becomes the sole focus, then leaders open the pandora’s box for the wrong types of growth.  Growth for growth’s sake is a high-risk business move. It sounds great as a headline but often masks what is really going on. The short-term benefits of rapid growth often come with long term consequences for any business. This is the difference between good growth and bad growth, which need to be clearly understood by owners and directors.

So, what is Bad Growth?

Bad growth is unsustainable. It’s a short-term grab that looks good but does significant long-term damage.  Bad growth comes in many shapes such as:-

1. In grabbing market share: buying a low value contract to win a new customer, which reduces margin sets a trend to lower margins.
2. In opening the wrong type of customer: which pulls the business to somewhere outside its marketplace, stretching the brand into different unprofitable places.
3. Over rapid growth by buying market share: with a low-cost entry offer or product which stretches the company’s resources, from financial causing unnecessary debt, to brand stretch damaging brand value to customer and channel trust breakdown.

The outcome of bad growth is that it stretches and pulls the company in wrong direction. Pulling a company in a wrong direction, is short-term thinking. If it is recoverable will take time, money are human resources to correct short-term bad growth. But here’s the other key problem that bad growth creates. If we incentives and measure only the growth, then we reward the people who created that bad growth. By giving them rewards and incentives to do more of the same, feeding the bad behaviour.  That creates an empowerment and acceleration off driving growth at any cost and at all costs.    

Growth at any Cost

That growth at any, and all cost, becomes a mantra which often overriders all other business and brand metrics. The first casualty is margins which become eroded, followed by key areas such as investment in new innovative product is sacrificed for cash cows. That in turn leads to brand position erosion as the brand moves from where it was. Which is where its existing valuable customers want it to be. To a new market position, which results in its former customers moving away to new brands. 

Causes and Solutions of Bad Growth

Bad growth is an outcome of poor leadership decision making. When directors, press the green button to go for growth at any cost they are the fundamental root cause of bad growth. Instead they should be developing a clear strategic plan for the business. Identifying a company’s its true value and long-term aspiration must to be laid out by its leadership team.  

Clear guidelines of what the business and brand stand for is a must be defined. and protected Growth has impacts and good assessment of the full impact should always be made. If a business outgrows a market growth rate, then how is that being achieved, and what is the long-term impact on the company must be fully understood.  

Bad growth is often cheap and easy, but destructive and expensive in the long-term. The classic phrase ‘there is no such thing as a free lunch’ should always be at the forefront of leaders minds. Bad growth takes the company in the wrong direction, moving it away from its market position, and most importantly away its existing loyal and valued customers.

Bad Growth Business Impact

As well as driving the company into wrong markets or short-term grab growth, bad growth often also has severe and significant internal impacts. Firstly, on the company’s values and its people motivators. Bad growth does not feel right to employees, demotivating good people and putting strains and stresses on systems and people as they are pulled in the wrong direction. 

Often bad growth creates internal conflict as people and systems are set up for good growth in product development, operating systems and customer focused activities. Challenging these, or short circuiting them to override them for bad growth goals creates tension and disappointment, demoting and demotivating even the most loyal employees.

Growth is a complicated goal and rarely one where there is easy low hanging fruit. It’s not just about increasing sales or market size; it’s about building a resilient, sustainable, and innovative enterprise. 

So What is Good Growth?

In business good growth is inextricably linked to a sustainable expansion strategy. It must be beneficial to all stakeholders within the business and to its external stakeholders especially its customers and channel partners. This holistic approach that considers the long-term impacts on the company, its employees, and customers. Good growth is led by a clear long-term strategy planning. It creates a steady increase in turnover and profit reflected in market impact of new product and brand position retention and enhancement.

Defining Good Growth

We can all see good growth after it has happened. We see more of the right type of customer for the business. They are spending more and are happy to buy more and more frequently. Happy customers come back and want more of both the same but also products and services which they want to a company to supply. 

Good growth is where: –

1. Alignment is strong between all stakeholders: with shared values and brand perceptions work hand in hand in growth planning and delivery.
2. Good growth is sustainable: it is both manageable and self-sufficient in generating products and services which sustain the growth of the business.
3. Ultimately it creates long-term profitability: throughout the business, not short-term growth but long-term profits, such as shareholder value.      

The signature of good growth are therefore sustainability, profitability, and alignment with the company’s core values and mission. Good growth reflects the inter-relationship of all these three factors. It’s a type of growth that supports and is supported by the company’s overall strategic plan.

Benefits of Good Growth

Good growth benefits the whole business. Not only does it support long-term sustainability It supports brand reputation, builds and develops customer loyalty, and motivates employees. Good growth is enhancing the businesses whole value as it fits within the brand values and adds to the whole of the business offering. Each off these three elements protects the business from bad growth drivers and practices.  

Strategic Thinking

All decision making starts with leaders focusing on long-term strategic positioning, which comes from a clear vision and strategy.  Good growth requires good leadership decision making skills, focused on looking at the whole picture and incentivising and motivating people on long-term strategic thinking. Typically, this is thinking out the business over timescales such as 3 to 5 years, depending upon market rate changes. 

This contrast with short-term grab thinking, which is often led by short-term grab bad growth habits of one year or less with motivators that reward or override big picture thinking.  

Leaders who foster good growth are adaptable and responsive to market changes. Good growth leaders are open to innovation and learning. In bad growth situations, leadership are often rigid, do not listen to feedback from customers and employees that could prevent negative outcomes. The outcome is more important than how they got there.

Conclusion

Good growth balances opportunities with threats to the business. It focuses on the three key elements of alignment, sustainability and profitability. A good growth culture ensures it is aligned with all stakeholder and company needs. It is sustainable so it can be replicated without damage to the brand, its customers and its future and finally it makes money for the business and enhances shareholder value.  

Don’t be led by people who over promise to grow your business, especially if they come from outside your sector or culture. If they don’t understand the sector and your market, they don’t understand good growth. 

Richard Gourlay, experienced management consultant, leadership development and strategic advisor, director and NED to high growth companies. Author of book:- Strategy: The Leader’s Role by Richard Gourlay builds the skills which makes leaders successful in their business. #cowden #mentor, #mentoringleaders, #leadershipskills, #NED, #Director.

The TOP TWELVE Business Planning Mistakes

Business planning is often talked about as a challenging process to go through either to start a new business or as the essential process of taking ownership of an existing business. Many business plans fail to achieve their objective, not because they represent a bad idea but because they fall into classic business planning pitfalls or fall over blinding obvious credibility cliffs.

The business-planning process is in itself a very worthwhile pursuit, while they take a lot of effort and resources they are an excellent way for business owners to undergo. A business plan's primary purpose is to convey an idea with a view to achieving a specific goal, most typically in securing funding. 

What makes a good business plan is less clearly defined. 

Always remember that a business plan needs to be tailored to its target audience, if you have different audiences you will need to be able to flex your plan to that audiences specific needs. That means shaping it, edit it and amending it to achieve your objective. 

If you would like to know how to avoid these top ten pitfalls and credibility cliff edges then click on the subject titles which are links at any time to see my step-by-step videos on how to avoid these pitfalls and credibility cliff edges. I have over the last 30 years been involved with hundreds of business developing business strategy, reviewing business plans and advising clients on how to implement a business plan. Below are my top 12 business planning mistakes business owners most often make, along with my thoughts on how to avoid them happening. 

Here's the top twelve business planning mistakes I come across:- 

1. Lack of Viable Opportunity

Every business plan needs to describe the opportunity in detail. It must also detail how that opportunity can, and will by this plan, be exploited profitably, effectively and successfully.  A good business plan can visualise the opportunity and articulate the company’s ability to reach a viable opportunity, this is a credibility cliff.

Tomorrow is a difficult place to plan for, but being able to identify and make that opportunity viable is the most critical test any business plan has. It is also the most common reason they fail. Your executive summary and the wider plan describes the viability of the opportunity in terms such as:-

1. What is the problem which people  will pay to have solved?
2. Does your solution solve this issue for a specific target market?
3. Why would someone buy your solution over someone else's?
4. Why are the benefits of your offering so compelling?
5. Can you reach that target market with a compelling message quickly and directly?

2. Unbelievable / Unsupported Financial Numbers

Where any assessment of a business starts and often finishes is at the numbers, specifically on the projected Income Statement or Profit & Loss. Projections are just that, but they are vital and must be based upon clearly stated assumptions. Many business plans are written with numbers which just do not stand up even to a first glance. 

Dream numbers: in overestimating income and understating costs. 

Your numbers have to make sense and be realistic, if you are a new start-up then they must grow rationally from nothing, but costs will be incurred before turnover is generated, these need to be realised and recognised in your financials.

The financials must also make sense and be presented in a format which presents a clear case for the investment and the return you will deliver. Ultimately, they need to be credible, defensible and consistent. 

3. No Accessible Route(s) to Market

All opportunities are only prospective ones without evidence that the target market can be accessed profitably, this is a big cliff to fall over.

Entrepreneurs are inherently product focused, concentrating their energies on ‘the winning idea’ to the exclusion of many other important elements such as how they intend to access their customer base, a classic cliff edge for any plan.

"Built and they will come" is a great dream but a poor plan. 

A business plan must include a comprehensive, credible and costed analysis of how the company is going to access their target market in a cost effective manner. 

For that to happen your plan needs to really understand the target customers, their needs, and purchasing priorities. Turning historical data into information and drawing knowledge from it ascertain insight into their future purchasing habits. Only then can you demonstrate cost effective routes to market within a business plan.

4. Executive Summaries Which Aren't

Somewhere between a pitfall and a cliff edge, is the failure of the Executive Summary, to be either a summary or aimed at executives. The only part of any plan that will certainly be read is the Executive Summary and yet they rarely provide an effective summary of the business plan. A good plan highlights the key proposition of the plan and sells the proposal. 

Too many Executive Summaries either throw everything down in a jumbled mess, making them pages long and randomly pulling facts together, or they are so bland they say nothing!  

What's a good Executive Summary, one that states the proposition clearly and succinctly, a page is sufficient for any plan. The Executive Summary should clearly explain the whole picture including what investment is required and what it will deliver. The point of an Executive Summary is to inform the executives, so many it punchy, outcome focused and only ever write it at the end.  
     

5. Over Estimating Turnover 

Another associated key element of the plan which relates to this element is the estimations of projected turnover. 

While every business plan talks in positive terms (hopefully), the obvious and persistent danger is that the innate optimism of all entrepreneurs and their tendency to exaggerate every business opportunity. 

This pitfall is most easily managed using a realistic method for estimating income is to calculate the number of customers the business intends to capture and the average revenues. These two averaged inputs are easier to calculate and also to justify within a business plan.

6. Absence of Clear Objectives 

I could have put this pitfall at number one very easily. What is the main purpose of the plan?

If the plan's objective is to seek funding then it is vitally important to clearly describe the investment opportunity. While the plan describes the concept in detail, it must also address the primary purpose of the plan. So many plans fail to make it explicitly clear what the company's needs to be successful or what the investment will mean to the company.

A good business plan answers:

• Why investors should investing in this business rather than anywhere else?
• When will they recoup their initial investment and how and when it can be realised?
• What is their expected return on investment?
• How the company has managed all aspects of risk? 
• Is the investment merely cash or do they need to bring other assets such as expertise to the table?

If you can answer these key questions, the intended audience will feel comfortable and be able to recognise that they fit the brief.

7. Non-Existent Cashflow Management

Particularly relevant to a new business, this is often an invisible cliff edge which business plans fall over on, is the ability of the business to articulate the differences between cash and profit. Running out of cash is the highest risk any new business or re-engineered business faces.

Good, positive, and conservative cash flow management is vital when businesses pursue investment opportunities where there are significant cash flows out, in advance of the cash flows coming in. This is the classic business plan cliff, which sends potential investors running.

If a business plan’s financial model is based upon selling on credit, then they receive the cash in the future, but need cask to pay expenses before that income hits their account, then they have a cashflow risk. This outflow of cash is the single biggest reason companies fail, its not margin, its rarely the product, it is invariably that they run out of cash.     

8. Non existent Management Teams

Throwing a few CV's into a business plan does not create a delivery team. Likewise a generic organisational chart with missing pieces and TBC (To Be Confirmed) is not going to inspire confidence  with investors to part with their cash.

Entrepreneurs can often sell an idea but they do not always inspire they can select a balanced team of people with the right skill mix, from the financial management to key leadership roles and the right operational team to deliver your ambitious plan.

Having a structured management team with operational structures is essential for success. Track records matter, as much as having clear roles and responsibilities laid out in delivering the operational plan which underpins the business plan.  

9. Poor Evidence of Demand

A significant area of concern when planning is justifying the sales forecast or demand levels for a product or service. This breaks down into the two main elements used in forecasting: the use of historical facts and the dependency of subjective assessment.

Sales forecasting, is the vital tool to identify the basis of all projected revenue figures that can be considered credible in the wider context of the plan. Unless there is verifiable demand for the idea, the risks grow out of all proportion, particularly if the initial start-up or investment costs are high.

Minimising risk in a business plan is all about gaining an understanding the potential demand and how the company will with this plan create or drive that demand rather than concentrate on ‘the product or the idea’. This classic cliff edge is a silent killer for investors, they don't believe in it.

10. Gaping Inconsistencies

An effective business plan needs to be consistent throughout as all the various strands are brought together into one single entity, the plan. It is pitfall which entrepreneurs gloss over, but investors relentlessly prod before committing to any plan.

If there are multiple authors of the plan the risks of inconsistencies will exponentially increase. Extrapolating data can also cause problems, using research data and then jumping from possible market size to sales potential and then sales forecast are classic pitfalls which need to be thought through. 

Presenters of the plan must have a simple narrative that runs through their plan, using key facts and staying ‘on script’ so as to ensure that a cohesive story is communicated. The numbers must also be consistent with the broader content so that there are no contradictions between them.

11. Not Appreciating the Competition 

There is always competition. Yet the number of times the phrase “there are  no competitors” appears in plans is considerable.

It does not matter how unique the proposition is there will also be some other business competing for people’s money. While there may not be a direct competitor it will certainly be a transfer investment that customers will be making. The business plan must recognise where the customers invest is coming from. If competitors are not identified in a business plan then the only credible assessment is that the company has not been diligent enough in its research.

Also remember that no company lives in a vacuum, as soon as you launch (or before) the marketplace will change. What will the competitive landscape look like in a few days, weeks, months or years? Can you create or establish significant barriers to entry, or is it likely that a successful market entry will be followed by better-placed competitors with greater resources, etc

12. Throwing Your Plan Out Too Soon

You never get a second chance to make a great first impression. Your plan needs to be right the first time and the content needs to be accurate, clear, concise and correct.

More often than not business plans need to be completed by a certain date and hence the final stages can be rushed, a classic pitfall.

Consequently, in many instances the final output does not do justice to the plan. Attention to detail at the end is vital, so ensure you have a completed plan with references and formatted correctly. Also ensure the content of the plan has been edited down to a digestible size, use appendices for details.

Get someone removed from the process to proof the plan. If a presentation is part of the process, it should reflect the Executive Summary.

In Summary

Business plans by definition have a purpose of communicating a course of action so make sure they do that primary role. Support inevitably means resources with the primary aim of the plan often being to secure financial investment. Explain the invest what it will be used for and how it will be protected from these classic pitfalls and cliff edges.

Writing a successful business plan is all about preparation, about being as thorough in your research and planning as is possible. By avoiding the cliff edges and pitfalls above, the chances of the plan objectives being met increase substantially.

Read more or get in touch to learn how Richard Gourlay can support your business growth. Or read more about strategic planning and business planning in my blog.