Some Barriers To Scaling Your Business.
Now that the recession is behind us, more and more businesses are looking at how they can make up for lost ground during the last 7 or 8 years. Our political leaders are talking up the economy and we all want a piece of the often-discussed bigger pie. The recovery has been somewhat uneven thus far, and unfortunately not every boat has risen with the rising tide. So how can we overcome the barriers that still exist and win our own share of the spoils delivered by the pickup?
There are several barriers we must all overcome as we strive to scale our businesses. They are as follows:
- Access to capital
- Scalable infrastructure
- Market dynamics
Let us deal with each of these in turn.
Access to Capital
The banks helped to drive global economies into recession due to poor risk management and because of their investment in exotic but risky products in the capital markets. This has significantly eroded their capital bases and it has taken a long time for many banks to rebuild their balance sheets. The result of this has been an inadequate supply of credit for growing businesses, which has in turn extended the effects of the recession.
Although there has been some loosening of the purse strings in the last 12 months or so, credit has not been restored to pre-recession levels and it can still be difficult for entrepreneurial businesses to access the loans they need to lift their businesses to the next level, particularly if they lack pledgable assets.
In recent years, businesses have tended to batten down the hatches to preserve their core operations and little investment has been made in upgrading their infrastructure and in providing adequate training for their management teams. The job of any leader in a business is to set the strategy and to inculcate the values that the top team espouses, right across their organizations. To do this, they must have the ability to grow enough managers into leaders in their own right, so that the new crop can propagate the values and capabilities of the business.
These new leaders must have sufficient training and skills to delegate effectively and to develop a predicable business that performs according to financial and operational projections. According to expert author Verne Harnish, scaling up a business requires “leaders who possess aptitudes for prediction, delegation and repetition”.
Growing businesses go through periods of evolution, wherein many changes happen incrementally and in a controlled way over time. This is followed by periods of revolution, wherein significant infrastructural change is required to lift the business to the next plateau, so that it may enjoy a further period of evolution before the next revolution becomes necessary.
Following a long period of underinvestment in infrastructure, again due to the recession, many businesses are now facing revolutions because they now lack the systems and structures to facilitate significant and predictable growth. A bigger business becomes more complex to manage as it grows and new systems, structures and communication and decision-making protocols need to be developed and implemented if chaos is to be avoided.
Market dynamics are sometimes overlooked by SME business owners, and these owners may be awaking sleeping giants as they grow and scale. All of a sudden, they may appear on the radar of larger competitors and without some form of sustainable competitive advantage, they may find that their larger competitors may try to stamp them out with market tactics and bigger budgets. An example of this is the Ryanair airline in the Irish market, which offers a no frills low-cost alternative to the national carrier Aer Lingus. They started small and only competed on a couple of routes between Ireland and the United Kingdom.
However, as Ryanair expanded into other European markets, they started to hurt Aer Lingus’s former monopoly, and the old monolith tried to put Ryanair out of business on a number of occasions, some say with the collusion of the Irish Government. Roll forward 20 years and you now see that Ryanair and their low cost model dominates the European market and the number of passengers carried by Ryanair are way in excess of what Aer Lingus carries. The essential message here is that growing businesses must face up to and address increased competitive pressures as they build and scale.
Core Decision Areas
If the issues discussed earlier in this blog can be addressed adequately by a business, then it is time to put the four core decision areas of the business to the test. These are strategy, people, execution and cash.
It is essential that you carry out a detailed analysis to ensure that the business has the right strategy, that the business strategy is based on core competencies that exist in the business, and that these competencies contribute to building and maintaining a sustainable competitive advantage that it is difficult for your competitors to replicate.
People will always be at the heart of your business and it is important that the top team develops and articulates a set of core values that everyone understands and espouses. This is the glue that holds the entire team together and it gives clarity and purpose to what they are doing, as well as providing a set of rules that employees can look to in every decision they take. It is fundamental that you recruit the right people and that they in turn are doing the right things in the right way. As the team grows, everyone must develop excellent delegation skills so that the load may be spread without any fall-off in performance or control.
Execution needs to be right every time and short daily meetings (or huddles) of between ten and fifteen minutes duration should help everyone on each team have a clear understanding of what is going on, what individual contribution is needed from them, and how their contribution fits into the overall game plan the business is pursuing.
As the business grows, these huddles can be broken into separate meetings of the top team, followed by individual group huddles for functional or cross-functional project teams. This exercise in open communication and information sharing is key to keeping everyone aligned with the business goals.
Cash is king in every business. Unless there is sufficient cash moving through the business, particularly in the absence of available debt or equity funding, the business will not be able to scale and may risk facing business failure. For this reason, there must be a strong focus on maximizing cash flow. This issue has been discussed in detail in last week’s blog – Speeding Up The Cash Flow In Your Business.