How do you measure the evolution of a smaller company evolving to a larger business? Is it headcount, profits, market share? For the purposes of this post I’d like to consider a company that would like to scale sales from $10m to $100m, let’s say over the next 10 years. That’s a compound growth rate of 26%.
I believe there are four major questions that require to be answered to achieve that big audacious goal.
- Is the market big enough and real?
- Can your product or service win?
- What processes are required?
- What talent is needed and what roles will they execute?
Financing this scaling is outside the scope of this post.
It maps quite nicely to the three big things a CEO of any sized company should be worried about: Strategy, Products and Talent.
By the way, scaling for you and your team might be to grow to $10m and stay there, having fun maintaining that revenue, keeping clients happy. No one is saying you have to scale upwards and onwards. However to stay relevant to your growing customer base, to find the resources to continually invest in your products and to offer your talent a vehicle for their career, you will come under pressure to scale. When scaling is done well, stakeholders see a strong alignment between actions and corporate objectives. They notice higher levels of controls around essential functions of the business. Predictability becomes more accurate and forecasting achieves higher levels of credibility leading to a great place to work and a financially safe company to join.
Let me offer some practical advice as you embark on this journey, wherever you are on the curve of fulfilling the potential of your business.
Is the Market Big Enough?
“Strategy is what you leave out” should be the mantra of every entrepreneur. So many management teams make the mistake, after their initial success, of spreading themselves too thinly. They lack focus. They can’t say No! Instead of defining their positioning to be the number 1,2 or 3 in a niche, they chase business that blunts their edge and often at weak margins. Sure sales rise but at what cost. What is the strategy? Distribution of goods and services have clearly been transformed with the development of the Internet, and the relative cheap cost of transformative technology. But that makes your choice of strategy even more important. It’s much easier today to execute a bad strategy than ever before. Consider your choices carefully.
Strategic reviews are a tool of big companies to assess direction. But are just as important for smaller companies. Awareness is everything. Do you really understand your markets? Are you aware of the performance of all the players? Do you understand which direction your customers are taking? Do you understand the technology threats? Have you assessed the Total Addressable Market (TAM), the Serviceable Available Market (SAM) and your current Share of Market (SOM) that you’ve captured or will capture (see link for more detailed explanations https://www.thebusinessplanshop.com/blog/en/entry/tam_sam_som).
It’s never too early to think like this. In fact it is essential if you are going to build products and services that the market craves.
For companies on a scaling path, the quicker you build a process around strategic thinking the better. This must not be confused with the annual budget exercise. Here are the critical components:
- Your Marketplace & Customers
- Technology trends, growth rates, customers and their markets defined
- Issues and challenges
- Growth drivers and market forecast
- Your Company
- Market requirements
- Growth drivers and market forecast
- Market sizing
- Product Roadmap strategy
- Summary, interpretations and actions required
- Implications for executing your strategy
- Execution actions by department
We are huge fans of this exercise, because without market knowledge you are shooting in the dark. Positioning stands head and shoulders above any other playbook. Who you are defines what you build, what you measure, who you recruit and perhaps who you acquire.
Can your product or service win?
Markets are competitive. Google’s market share of search results in 2004 was 35%. In August last month it was 92%. Competitors never sit still. They are constantly innovating. What’s your plan? You have clearly identified a gap in the market. Any entrepreneur that has built a business of $1m or $10m in sales has clearly found customers. The question remains, how will you continue to win?
Understanding the value proposition that you bring to the market is key. But what does that mean in your industry? It’s important to connect the overall value proposition of your company to the specific value proposition of your products, and even then you need to be able to articulate the competitive value proposition of your products.
Let’s review an example from one of the new macro trends in the technology world – The Internet of Things (IoT). A client was focused on delivering continuous, secure communication networks to the First Responder market. Their overall value proposition was based around enabling a Safe City environment. At a product level their value proposition enabled fire trucks around the city to seamless connect at the scene of an incident through their unique technology. A self-healing mesh network was created despite the difficulties presented by a densely populated city with skyscrapers everywhere. But the value proposition still has to go further and explain the competitive value proposition relative to the Ciscos of the world.
Only when you think in these terms can you hope to create competitive value propositions that give your products a chance of winning. The tactical challenge is to convert this approach into a sales strategy that focuses on value not price. This is one of the most important examples of alignment. The alignment between strategy, your unique value propositions, product value propositions, product road maps, and therefore the story that marketing and sales will take to the market. The better you understand how you can competitively satisfy the needs of your customer, the faster you will grow.
Now if the market is not big enough for your ambitions, you now get the chance to Reposition!
What processes are required?
It’s all about the relevant process to improve results. It’s a matter of scale and timing. The protocols required at say 100 employees are clearly different from your early days where five or ten employees are striving to build a credible business. It’s about self-awareness. It’s hard to admit that what got you here, probably won’t get you to where you want to be! Even entrepreneurs who have scaled several businesses must be wary of letting the arrogance of experience dictate a cookie-cutter approach.
As you scale you need to answer many more granular questions on more subjects than ever before. So one test on protocol is to set out questions that require answers and if you’re struggling, it’s usually because you lack a process to generate those answers. At any level of scaling you are constantly evaluating the four main pillars: Control, Alignment, Predictability and Safety. A new process should be improving one or more of these pillars. Let’s review four major areas of your business, Finance, Marketing, Product Management and Sales, and set out the questions that a great process solves:
- What are the key drivers to transform the profitability of our business?
- What products are the most profitable?
- What are the main reasons for quarterly Gross Margin & Net Margin movements over the last 12 months?
- How accurate are our weighted pipeline sales forecasts throughout the quarter compared to the final result?
- What actions are required to improve our weekly cash generation?
- Taking all cost lines as a % of sales, which % have grown the fastest and why?
- Which ratios would you use to measure productivity?
- What changes to our pricing model could improve our sales and profits?
- If you were to take a zero-based budget approach to our infrastructure what recommendations would you make?
- Where are the greatest risks to our planned profit target for this year and what actions could be taken to reduce that risk?
- Can you name the 20 most popular pieces of content we published this year?
- What is the cumulative return on investment % of each of our marketing campaigns including trade shows?
- What are the trend lines over the last 3 years for online form sales inquiries and inbound sales calls?
- What are the 5 highest referral engines regarding traffic to our site?
- What is the acquisition cost of sales leads by marketing channel and the trend lines for all?
- What does your editorial calendar look like?
- What strategies are you deploying to achieve a consistent SEO ranking?
- How does our value proposition as a return on investment compare with our five main competitors?
- What product features are we missing to win more orders in each of our leading markets?
- What product road map suggestions make sense given the trends in the marketplace?
- What are the customers saying about our product and services from quarter to quarter?
- How do our Net Promoter Scores compare with our competitors over time?
- What are our TAM, SAM and SOM numbers and forecast growth rates?
- What emerging technology has the potential to disrupt our industry?
- What’s our likely runway for our legacy products, in terms of future years of sales?
- Are you constantly reconciling product management insights with marketing and sales messaging that is being taken to the market?
- What has happened to your sales leads/suspects over the last 7 days? Show me progress over that period.
- What are your monthly trend lines regarding Sales leads given to you from marketing?
- What is your weighted pipeline in $ (£, ¥ etc.) for the current quarter relative to your pipeline?
- How many more deals and at what average value do you need to close to hit your target?
- What product/services do you struggle to sell and why?
- What products do you find easy to sell and why?
- What is your ratio of proposals to closed business?
- And for each live deal:
- Tell me specifically for this prospect how are we improving the life of your sponsor (the actual human being you are talking to)?
- Who are the influencers that can affect the decision to buy from us?
- When does the prospect expect to be operational, up and running and fully trained, enjoying the dream?
- What is the ROI% on your prospect’s investment in us?
- What problems did the sponsor think they had or did not have and what problems do they now accept need addressing?
- Why is the issue you are solving a priority?
- What is the main reason this deal will not happen?
- What is the main reason the deal will happen?
- What is the clear next step by whom and by when?
Of course we have chosen the above four, but there are many more depending on the nature and strategy of the business including, Production, R&D, Customer Support, HR, and Acquisitions. We will address these in later posts.
What talent is needed and what roles will they execute?
Beyond the boss what roles are required as you scale? Business will always come down to people. You can have great technology, a huge need requiring to be fulfilled and a well funded balance sheet, but if the leadership team is flawed you will hit problems. Uber seems one of the most recent examples to hit this problem. But the Uber point is more about style, morality, authenticity, credibility and effectiveness, which is outside the scope of this blog post. Our guidance here is to address the challenge every management team face. When do I recruit a CFO, a Product Manager and perhaps a surprising important role considered a big company solution, the COO? Most companies under $10m in sales are missing these roles but most companies of $100m plus in sales have them. So let’s offer some guidance on the benefits these roles bring to the party. Only you can decide the return on investment that these roles can bring and therefore the timing of that investment.
Chief Operating Officer: If your team is working on a project that solves one department’s problems, then it is unlikely the team is executing on the big audacious goals that move the dial forward. Scaling to the next level involves defining projects that are aligned to your strategic aims. Examples include: redefining your product roadmap, implementing a new go-to-market strategy for marketing and sales, building an internal training university to develop talent or implementing an acquisition process into your business. These projects require multi-departmental effort. Getting teams to work together across departments is one of the biggest challenges for any CEO. Leading inter-departmental issues with skill, empathy and drive requires time. At some point the CEO just can’t lead all of these projects. COOs are particularly good at aligning the vision of the CEO with the actions required by each senior manager to enable successful execution. She should have the skills to translate large arcs of strategy into language that resonates with staff. COOs are skilled at creating symbiotic relationships between departments thus aligning execution with strategy.
Chief Financial Officer: A good accountant will measure your numbers beautifully, but won’t necessarily tell you why. Why they were below budget, above forecast or higher than last year. CFOs at their best, at any size of company are storytellers. CFOs are relentless at finding the truth to aid the management team to make more informed decisions. Understanding why you are successful is just as important as why you fail. They are also really good at defining the questions that require answers. It always starts with great questions. He will understand the CEO’s strategy, influence what is possible, point out dangers and constantly be looking for a safe way of solving the problem.
VP Product Management: Customers rarely make buying decisions in isolation. They are making a comparative decision. More than ever access to competitor offerings is easier than ever. As you scale your business, there will come a point where the competitive information gathered by the sales team or marketing team just doesn’t cut it. Too often you are surprised by new product launches by competitors. Or perhaps you are losing deals to competitors you’ve barely heard of. Perhaps when you conduct a strategic review, you find yourself as CEO struggling to access meaningful market statistics, or accurate verifiable information on your market share of each niche. Or perhaps on hearing your own team’s sales scripts, you are underwhelmed by the lack of discussion around competitive value propositions.
As you scale to win larger deals, have deeper relationships with customers, and arm your sales team with decisive competitor information – you will naturally graduate to a place that requires the deep knowledge that product management can bring to the party. At an even later stage you will spilt this role into product management and product marketing, with the latter role defining the messaging to be taken to the market, based on the insights of your product management team.
In later posts we will address other roles including Product Marketing Manager, Production Director, Customer Support Manager, CMO, VP of Sales, Corporate Development Director, and HR Director.
I hope these thoughts help start a discussion between the owners and management of your company on your scaling priorities.
TPP is an operational consultancy that scales businesses organically and by acquisition. Every client team consists of one or more partners with successful C-Suite track records. Our biggest added value? We align effort with strategy. Scaling is not the same as sales growth. There’s more to it than that.