Author: Ian Meharg | Reading Time: 9 minutes
Let’s talk prioritising key actions
In this blog, we work forward from the baseline we established in part 1 of Get Fit For Growth and see what state our business needs to be in for the way we expect the market and environment to change. We look at the key business functions that need to step up and what actions we need to take in what timeframe to get the growth engine running again.
We absolutely recognise that growing a small business from startup to superstar performer is a challenge as well as a reward on many fronts. We previously established how to set a baseline for improvement in the first blog. Why do that you might ask? Well, if you are going to know whether you have improved or not, you need to know what state you’re in now. And that allows you to measure and monitor the improvements you make – compared to where you are now.
But what about where you want to be in the future? How will the changes you make stack up against your aspiration? You might be a better performer, but will you be good enough? Will others like you have been smarter, worked harder and pushed even further ahead so although YOU are better, the gap to where you need to be to compete effectively hasn’t changed.
In this blog we’re going to talk about not just where you need to get to but how to prioritise the key actions that will put you where you need to be in the key areas that matter most to you.
Money talks, numbers matter
If music is the language of love, then numbers are the language of business. In your review of your current state, it is quite likely that you will have realised there are some aspects of your business that are let’s say, heavy on opinions but light on data. You may find that some things on which you are really depending are actually not that well managed, that you don’t really know the size, shape or scope of what is going on and that decisions are being taken on gut feel, intuition or even that well known strategic approach, a wing and a prayer.
Don’t (just) rely on instinct
And it is also possible that until now, that’s been fine and you have kept going without having the numerical information that underpins your decision making and day-to-day management. But it is also well understood that as your business grows you can no longer rely on just instinct. That’s not to say that a feel for a decision is unimportant but just that when the issues at stake are bigger, more complex and sometimes downright scary, you will need to have the financial and numerical foundations and disciplines to back up or inform your actions. Or to put it another way, as former US president Ronald Reagan was fond of saying, “trust – but verify”.
Therefore, your number one priority should be to ensure that you have a good grasp of:
- All the key metrics for your business and what they mean, how they reflect the state of play and drive the future.
- The forces, internal and external, that change those metrics and in which direction.
- What ‘good’ looks like for you, and how you compare against others in a similar situation.
- Who is responsible for each of those key metrics across your business and make sure that they are aware of this?
If you were to stop any CEO of a large corporate in the street and ask them how their business is doing, they will be able to rattle off all the key metrics (i.e. revenue, profit, EBITDA, share price, market share and so on) AND tell you which way they are trending against their own history and the markets they compete in. You may not aspire to be such a CEO but you should aspire to have that degree of insight on a daily basis.
Probably top of mind for them in a crisis is “am I going to run out of cash?” We covered this in the first instalment of the blogs so it won’t come as a surprise that amongst all the metrics you need to be on top of, your number 1 priority has to be cash. To give a medical example, when you visit your doctor the first thing they measure is your blood pressure. Blood is like cash. It needs to keep flowing where it is needed and you can’t run out of it. Cash represents the most important indicator of your business’s health just as blood pressure can say a lot about your physical well-being.
If customers are Royalty, are some more Royal than others?
The customer is king, right? The customer is always right, true? So why then do we not always treat our customers for what they are – our only source of revenue. As we discovered in the last blog, probably 20% of the people who buy from us provide 80% of the revenue that sustains our business. We learned that identifying those key 20% and making them feel extra special was vital to keeping our business heading in the right direction.
However, to ensure we prioritise correctly you need to dig a little deeper into the numbers. Ask a few more questions. Such as,
- How many of the top 20% are there because of a single large order?
- How many times have they bought from us in the past 3 years?
- How long have we been trading with them?
- What is our relationship based on?
- Do any of the 80% have the potential to move into the top 20%?
- How do we grow the overall pie?
- What is our cost of sale to these larger customers? Are they individually profitable?
Quality counts, not just quantity
You can see from this that not all businesses we trade with are necessarily those we would choose to. Some customers can be extremely demanding and soak up resources without creating additional new business. If you are going to grow not just the top line but the bottom line, knowing your cost of sale customer by customer is essential. Hence the emphasis on numbers mentioned in the previous section.
Before you can really determine where to deploy the resources you have most effectively, you need qualitative information as well as just the raw sales numbers. If you are not collecting that or haven’t done the analysis before, now is a great time to put those disciplines in place and keep them there.
Otherwise, you risk making some far-reaching decisions on insufficient information, relying on gut feel and it all going horribly wrong. As before, the metrics lead you to where the problem (or opportunity) might lie but they don’t provide the solution.
Can you afford to keep innovating? Can you afford NOT to?
Standing still in today’s business environment is like running with a huge parachute tied to your back. Others will appear to hurtle past you. But innovation is an investment that doesn’t always pay off and even when it does, it can take a long time to repay you. It’s very tempting when the foundations of your business are rocked to the core to look for quick and easy ways to save money.
Travel, entertaining expenses, new cars, pay rises and so on are lower hanging fruit and can easily be reinstated when better times return. You can probably cut back hard on this discretionary spending areas as everyone else will be doing the same so it should not put you at a competitive disadvantage.
But if innovation is what got you ahead and will keep you there, then it’s not a tap you can just turn off and back on again and expect everything to return to normal some months or maybe years later. It therefore becomes an almost philosophical choice or an act of faith to keep up your investments knowing that others in the business, also deserving, may lose out.
One way to look at it is to ask “what happens if we don’t do this?” What impact does this have on our ability to grow and compete effectively when the good times return? How would we recover if our competitors kept their spending on innovation and we didn’t? And if by not investing we unwittingly pushed some of our best people out of the door and into the arms of a competitor, how smart would that be?
You may feel you don’t need to make these decisions right now, but you will soon. Just don’t do it on the basis of cutting cost – you could be cutting off your future.
People get ready, there’s a train a-coming**
Or is it the light at the end of tunnel? There’s no avoiding this one as just about everything and anything you do in your business will impact people. Some of them some of the time, some of them all of the time.
It is normally a good practice to make the difficult decisions early, to take the pain and move on. And when it is a pure business problem that is certainly the case. But as soon as it goes from the abstract to the personal and you attach names to the reduction in headcount then it becomes a whole order of magnitude more difficult.
In large corporations with hundreds of thousands of employees, the decisions are taken far away from the point of impact and so there is little human to human contact. When the people are ones that you have personally hired, got to know and valued, then having to take away that person’s livelihood whilst looking them in the eye is not for the faint-hearted. It can, and should, be an emotional experience which means you need to give even more consideration to what you have to do and why.
Balance individual and greater good
You can’t let emotion be the only factor though. You have to think of the greater benefit for those who remain so that maybe at some point in the future there might be still be a business for those let go to return to. People are very resilient and they usually bounce back as their own survival mechanisms kick in just as your business survival instinct does for you. It’s one of those tasks that nobody really wants but come with the territory. You can’t pick just the nice bits of what you do and ignore the tough, unpleasant parts. In summary,
- Cut early, cut deep.
- Cut more than you feel comfortable with otherwise you’ll have to come back
- Be honest and open with people about the reasons
- Be supportive of those in vulnerable positions
- Talk to people and keep talking
- Don’t feel bad about losing the deadwood.
Communicate, engage, listen to everyone – the decisions are yours though
Whilst all these storms are raging around your head and the winds of crisis are crashing through every part of your business, it is very tempting to find your bunker, bolt the door and pray it will just go away by morning.
Even if that were possible you must resist the temptation to clam up and go it alone. The greatest demotivator in business is uncertainty. If those who depend on you don’t know what is going on directly from you, they will fill in the gaps in their own way. They will start to worry, panic even. They will follow someone else who appears to know (but doesn’t) and before you can say” press release”, you will have lost control of the agenda. If that happens you will expend ten times the effort to recover the initiative.
You may not be the world’s most natural or gifted orator – that’s fine. But you MUST engage people. And realise that your different audiences need to be addressed in different ways. What matters to a banker or accountant or investor is not the same as what shop floor employees care about. Don’t confuse them by giving them all the same message.
Don’t suffer in silence
Get professional help early if you’ve never been in this position before. You will have your own set of trusted advisors and confidantes you can turn to for guidance. Use them.
As the situation evolves then your communications should also evolve. Don’t see this as some irritating task you can’t delegate and so don’t give it due respect; see this as an opportunity to demonstrate your vision, your clear grasp of what needs to be done, what people can expect along the way and what you need from them.
Many people who never expected to be in this position in a crisis suddenly find new depths, new reserves, new motivation they didn’t realise they had. They say that cometh the hour, cometh the man (or woman). If this is your hour, don’t squander this opportunity to demonstrate why people believed in you in the first place. And when the storm abates, you will look back and be very glad you grasped those nettles.
What’s the plan, man?
Yes, you are that man and it is your plan we need. Here’s what should be in it:
- Get beneath the surface, understand the numbers that tell you how your business is doing.
- Be very clear about where you need to get to in future – what does good look like?
- Control the key metrics you depend on and know what impacts them.
- Get to grips early with the quality of your revenue not just the quantity.
- Be prepared to keep investing in your future whilst reducing exposure to non-essential costs.
- Accept you have to make some hard decisions and make them early.
- Communicate and listen; you might not have all the answers.
- Be flexible and ready to alter course if circumstances change.
- Use the crisis as a way to improve and don’t just run for cover.
To learn more about how to get your business back into shape go to Get Fit for Growth, the digital project for smaller companies who want to improve. It’s a fitness plan for your business! You can try it for free, no obligation, no CC required.