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Is Your Growth Replicable?

Many growing SMEs stall after exhausting immediate growth opportunities. Don’t confuse growth with scaling.

Is Your Growth Replicable?

Popular business literature typically focuses on either big companies or start-ups, seldom the guys in the mid-sized sector. Yet mid-sized companies—let’s say, those with revenues of at least R100m per year—are usually much more resilient than their smaller cousins.

Illuminating data from US companies during the 2008 financial crisis show that 82% of the mid-sized players survived, while only 57% of small businesses lasted. Medium businesses also added an average of 20 jobs each while big companies down-sized. (Harvard Business Review, 2016)

We see similar results in South Africa during the lockdown crisis, where small ventures are most at risk, while medium and large companies have deeper reserves to ride out the storm.

But the challenge with inferring a company’s resilience based on its revenue, or even its net profits, can be grossly misleading.

In our M&A work, we regularly review client and acquisition target businesses. What we often find is that, although the financials might flatteringly put a business in the “M” category of SME, the underlying fundamentals are much closer to the “S”.

In other words, the business has grown, but its capabilities have not scaled. Growth is where inputs and revenue grow at the same rate, whereas scaling leads to revenue increasing exponentially faster than costs.

In scaling, the business “machine” that generates those revenues is more intelligent, efficient and reliable than a business with a more-of-the-same approach to growth.

It’s like seeing a business with R100m in revenue trapped by its systems designed for only R10m. It’s not sustainable.

If you want to scale your business sustainably—versus purely grow the financials—here are 3 areas to focus on:

1. Define your strategy by your market position and brand identity. Vision, mission, KPIs and financial projections are important, but they’re stand-ins for real strategy.

Customers won’t care about you if they can’t distinguish your brand from your competitors. No business has a strategy unless it’s driven by how customers see it and experience it.

2. Don’t replicate; build capabilities to scale. You may have found a niche and grown rapidly, so there’s nothing wrong with a “rinse and repeat” growth approach to exploit this.

But riding the crest means you risk crashing when the wave breaks. Fundamental growth means continually asking what your business must look like in order to capitalise on the next wave.

Planning for future scenarios means pre-emptively designing your talent, processes and technology to be ready for the next scenario and not playing catch up after the world has changed.

3. Systemise. I’ve noticed many of our clients baulk at the word, as if I’ve just sworn like a sailor at them. But in fact, innovation and growth are impossible without an underlying platform of stability, which can only be achieved through governance and SOPs.

Start by mapping your key value-chain capabilities, then prioritise which ones will yield the greatest value from raising their maturity. Stabilising how things are done not only increases quality and efficiency, but it literally liberates attention to focus on strategy and innovation instead of the minutiae of operational work.

Whether you’re building a lifestyle business or an asset to fund your financial freedom, use these techniques to level up your business.

(Image credit: Fintel Connect Technologies Inc.)