These nine factors determine if your business will make it to $2 million in turnover
Why do some businesses break through $2 million in sales and progress toward $10 million and others don’t?
A business may spend ten years struggling to grow from $1 million to $2 million and just not get there in spite of consistent effort. Another business may take ten years to grow to $10 million.
The CEO who takes advice and constantly learns how to be and do better is a world away from the frantic business owner who won’t seek advice, won’t listen even when advice is proffered and steadfastly refuses to let go of anything and trust someone else.
Many of my clients take around two to three years to double their turnover — in a manageable way. That is because they want to and they are willing to take advice. The ‘letting go’ bit usually takes a while but they all get there in the end!
Many factors at play
Why do some businesses break through $2 million in sales and progress toward $10 million, and others don’t? There aren’t any definitive explanations, but I do know there are some key considerations that determine how far they grow.
Vision of the owner
Without a vision of where the business is headed, it will be a challenge to justify the expense of investing in good people, and also to have the story that inspires them to join for the ride. It is difficult to inspire a team with a big vision if there is little evidence of the company being on the path to achieving it. As the company and the founder grow, this will come.
The paradox of growth
The paradox of growth is that, in most businesses, in order to support revenue growth, more people are required. More people add more cost, which erodes margins and profit. So, the more you grow, the less you can potentially make. That’s why it’s important to give so much focus to resourcing, people, and analysing the numbers, as these activities will help make your business more efficient and more profitable.
Forecasting resources and tracking those additional costs in alignment with key indicators (such as revenue per employee, for example) will give you the tools to manage this paradox.
The business model
Wholesale, retail, online, B2B, B2C, product supply, service delivery, subscription models for software and IP… and so the list of potential business models goes on.
If a business model changes, it can require shifts in resources and core activities. Licensing and certification can require international commercial arrangements and separate financial entities and structures. Changing from a consulting model to an agency model with a team spread across different countries requires many shifts in how the business, the clients, and the team are managed.
Different business models have their own challenges. If the founder decides to diversify into another business model or shift to a new model, it can impact growth in a negative or a positive way, depending on how that shift is managed.
The products and services
If the company’s products and services aren’t of the right quality and aren’t competitive, or if there is a limited need in the market, or if something in the mix isn’t working such as packaging and pricing, this will severely inhibit business growth.
Many businesses that provide a design component prior to delivery of a service (such as interior designers, landscapers or brand agencies) make the mistake of not charging enough or at all for the design upfront. They hope to win the business and then charge for the service delivery. By doing this, they are only charging for half of their product and service delivery. They may find the margins in their business are not enough to support the resources they need for continued expansion.
The business owner
How driven the business owner is to grow and upscale, how much business experience they have, how willing they are to learn, how resilient they are and their risk appetite will all influence growth.
Source: Supplied
Business owners need to understand what culture is and how to build it, and know that it isn’t just based on cool office spaces and fun perks. The person at the top needs to make roles and responsibilities clear, communicate effectively, let their team get on with it, and acknowledge valuable contributions and efforts when they occur. In a strong culture, people feel valued and appreciated, there is open communication, they know where they fit in the bigger picture and what they have to do, and wins are celebrated. All of that comes from the business owner and will help a business upscale.
The approach to people
Business owners who genuinely care about their people — and who provide the right structure for those people to thrive and contribute — will build better culture in their company, are more likely to have an A-Team in place, and will find it easier to attract and retain people who contribute real value to the company.
This positive approach to people must be embraced by everyone in the team as part of an enabling culture.
The structure for managing the business
Business structure includes how the team is structured around the owner, having the right number of people and not too many overheads relative to your sales and margins, clarity around roles and expectations for performance, clear and efficient core processes that everyone can follow, and dashboards for reporting key numbers and ratios for managing the business.
Commercial considerations
Commercial considerations include the right pricing, supply agreements, customer contracts, insurance, risk assessment and management, supply chain efficiencies, and backup. Outsourcing functions where your business has no core competencies, if the cost-benefit analysis works in your favour, can save costs of internal resources and business owner time and involvement, and speed up the company’s core processes.
The owner learning to let go
You can’t grow if you don’t let go. Shifting from business owner to CEO and leader is essential as your company morphs from you and a handful of people to a sizeable business with a growing team. The only way to learn and develop is to get out of your comfort zone.
In his book CEO Secrets, Dougal Shaw comments that founder CEOs focus more on driving sales revenue, whereas CEOs who have experience running other people’s companies are more focused on structure and take a more considered and strategic approach to managing and growing a company. The latter have no problem letting go because they have complete clarity as to what their role is. The founder CEO has to work it out and will take time to actually let it happen.
In my experience, when a founder seeks external, professional advice, they will learn to let go and step up much sooner.
This article is an extract from the book The 7% Club: How to be one of the 7% of businesses that make it beyond $2M in turnover by Jenny Stilwell. She is a strategy advisor and business mentor.
