When setting out on a path to rapidly grow your profit, you are almost certainly going to have a few “crises of confidence” when you ask yourself “is this even possible”?
There is no simple solution to this question but we will take a Profit Growth Reality Check here by examining a few of the issues that may pop up in your mind to see if we can put your concerns to rest.
This is also the first of three steps on our Yellow Belt Boost Revenue and Double Profit in a Year Profit Savvy program (more here)
Have you got Serious Obstacles to Growth?
It is quite possible that there are real impediments to your existing operation being able to grow its revenue and profits as you would like.
We need to identify any of these and then do a reality check on how much they are likely to reduce your ability to grow.
If the impact is significant, you might want to rethink what business you are going to grow.
Actual impediments we consider include:
- Company culture
There is a second group of imagined impediments which, though not real, are just as likely to stall your profit acceleration efforts.
Most of these revolve around your commitment and belief, as the project leader, that your profit can be grown – and rapidly.
Your troops are likely to be less enthusiastic than you about changes to grow profit because there is not a lot in it for them other than uncertainty; which many in the workplace don’t like.
Until you are oozing confidence, the project is likely to stall.
In this article, we surface a number of your likely concerns and discuss how to clarify and resolve them.
Without doubt, people are going to be a mission critical resource for you to achieve your profit goals.
Jim Collins in his "Good to Great" series of books refers to the necessity of "getting the right people on the bus".
He argues, that it is more important to have the right people available to you than it is to necessary have a clear Business Plan. This is because the right people will execute any plan competently whereas the wrong people will not be able to execute even the best plan competently.
The detail of who will be the "right people on the bus" needs to spin out from the decisions made elsewhere in your Business Plan. This will help you to flesh out the number, type and skills that you need for your various levels in the business.
We can break the people issues into three groups.
- You will have to be the main driving force for your profit growth program. There is no alternative! Leadership like this must come from the top.
- You should have a major input into the goal setting exercises so that you are personally comfortable with what you are setting out to do.
- Likely you will have moments when you think that you don’t have the technical skills and knowledge to undertake such rapid profit building. Rest assured that many / most others don’t either else there would be plenty of examples of runaway growth!
- Profit Savvy exists to coach you through the process and we haven’t done our job until you feel supported throughout.
- Most of getting through this hurdle is simply deciding you will have a go. Profit Savvy is designed to help once you have made the psychological decision to ”have a go”.
If you can’t get over this "You" hurdle by the time you have finished this article, you can stop reading because rapid profit growth simply won’t happen!
Your existing team is most likely:
- A mix of very “keen to grow”, “will go with the flow” and "don’t like it at all". In fact we can use a rule of thumb that there will be about 15%, 70% and 15% in the three types. (For the statistically minded, we are using a Normal Distribution and plus and minus one standard deviation) (see Normal Distribution article).
- Listening to the largest radio station in the world - WII-FM (What’s In It For Me). If they are at risk (even if only in their mind) of losing their job and/or face, they will actively or passively resist the change
- Uncomfortable with uncertainly. You are probably uncertain how all this will work out and you are more used to taking risk and ‘blue skying’ things than more junior staff. After all that is why you are the boss. Risk management is a necessary condition of the manager’s job. Consider how more risk adverse more junior people will be feeling about all the change.
- You must take the time to keep the team informed about what is going on as it evolves.
- Rumour (perhaps fanned by those not keen on the change) will undoubtedly take off. Left in any doubt about what is happening, people will fear the worse; it’s a natural condition. You need to be very sure that you keep them informed - and preferably over-informed - about plans.You will need to take a leaf out of army training manuals and “tell them what you are going to tell them, tell them, and tell them what you told them”. Alternatively, keep in mind the advertising maxim that people need three exposures to (for example) a TV advert before it penetrates. That’s why the same ads run several times during a TV show.
The bigger the organization, the more effort will have to be devoted to good communication and team building. Until at least a critical mass of staff are “on the bus” the dead weight of those opposed will stop you getting momentum.
If you are a middle manager, you will need support from two directions:
- Your superiors: if you are trying to make changes, your bosses need to understand what you have in mind and support it. You will be moving fast and quite possibly breaking a few things and you never, ever, want to surprise your bosses. Get them on board from the start and keep them informed. Never hide bad news from them otherwise you will foster doubt in their minds.
- Your fellow middle managers: if you are a middle manager, you are quite likely a specialist of some type; production, sales, accounts etc. If you make changes to your fiefdom, it will certainly impact on your colleagues’ fiefdoms. Some will resist you, if for no other reason than you are pushing them out of their comfort zones – “that’s not the way we do things here”. This is a tricky issue. You may have to discuss any problems with your superior managers and see if they will support your liaisons with your colleague managers.
For more on people related aspects of your profit growth plan, see our various articles on Human Resources (see The Human Element in Profit Growth group of articles).
The common theme to this section is the need to manage the process of change if your plans are to have any chance of success. Read the Profit Savvy Q&A on Change Management
It is quite likely, if your business has been established for any length of time, that it has a very clear (though not necessarily written down) company culture. People get into grooves and over time they feel comfortable in those grooves; or they leave the company.
Your optimisation process is certainly going to change some of those grooves and therefore unsettle people.
You will need to rebuild or modify your company culture to allow it to work in a new optimised environment.
At the very least, you will need to establish a new "optimisation" groove so that optimising the business becomes a continuous process going forward. Your increased profit, once obtained, is maintained.
There is a very common tendency in businesses to have a company culture where people in senior positions simply tell their staff what to do.
This is a terrible company culture to have as it means that instead of having all minds in your business tuned to make it successful, you only have those in the senior positions. Bosses are going to be stretched for time to micro manage and probably do not know nearly as much about the workings of some parts of the business workflow as the people who are doing it.
Investing in improving the understanding of your business and its progress by your staff is likely to be very rewarding.
This certainly means constructing a reasonable set of metrics (see Metrics article) that staff can understand and follow. Often something as simple as coloured "traffic lights" on your data (red, yellow, green highlighting over key numbers for bad, ok and good) makes the information a lot simpler for staff to absorb. All they have to know is that red = bad and green = good and work to keep everything coloured green.
For your more senior managers, you should be prepared to share financial statements so that they can see the financial direction of the business.
It is a natural tendency in people who get no feedback as to how they themselves are progressing or how the business is progressing, to think everything is going well. Very few people will think that they are doing a bad job. If they are not shown data to the contrary, that they can understand, they will simply assume that what they are doing is the right way to proceed.
Transparency of your key metrics is a prerequisite to a successful company culture.
It is also a well-known maxim that staff will work to improve whatever management appears to have under the microscope. A carefully thought out set of metrics will ensure that the staff are working on the things that management calculates are most likely to improve the performance of the business.
Early on, when considering Profit Growth, you must decide if your business is "Emotionally Bound" or "Unbound".
Because of your personal preferences / emotions, is it in some way a comparatively limited activity (Bound) or an open-ended idea (Unbound).
We will call these two broad directions "Bound" and "Unbound" businesses.
This is an important decision to make because it will govern the future maximum size of your business within your comfort levels.
Bound businesses are ones that are either intentionally or accidentally restricted in the future growth that you want to aim for.
Bound businesses are intentionally limited by such things as:
- Geography - I only want to operate in my local suburb versus anywhere, or many places, in the world.
- Capital - I don't want to invest any more than $xxx in my business and I don't want to put other capital assets (i.e. personal home) at any risk.
- Time - the type of business that I am interested in is limited by (for example) my available time. Therefore, it needs to be a business that I can operate within the time available to me.
- Ambition - I really don't want to have the stress of a fast growing business, I am quite happy with getting a business that earns me a decent income without unnecessary stress.
- Quality of Life - my take on the work/life balance is that I do not want to sacrifice the life part for work. Therefore, I am happy to have a business that knows the boundaries within which it wants to work rather than being blue sky.
- Family/Relationship demands - because of my particular stage of life, I want a business that allows me (for example) to work only while my children are at school.
There are any number of examples of this type of "Bound" business. They might include the following:
- A single shop, be it a restaurant, retail store, coffee shop.
- A professional business based around your personal skills in law, accounting, medicine or a building or related trade skill.
As you can see, this type of business is "Bound" by your attitude to the types of issues above. There is nothing wrong with having a "Bound" business. It is no indication that you are a wimp, or largely unsuccessful, because you have chosen to have a business that you can "put your arms around" quite comfortably.
This is simply the type of business that suits your personality, skills and life stage and is imminently a reasonable approach for you to take.
However, Bound businesses are not going to be easy to grow while the bounds remain. Either you decide that trying for profit growth via a substantial increase in revenue is not for you after all and change your focus to optimizing what you have to improve your profit (see e.g. our Double Profit in 100 Days system). Or you decide to remove some of the Bounds. (More on this later).
The Unbound businesses are the ones that are less restricted by the sorts of emotional issues that we spoke about above. Things like geography, capital, time are issues that an "Unbound" business is not too worried about.
The characteristics of an Unbound business might include:
- They are blue sky - there is no limit to how far the business might go given enough of the resources that it needs.
- Available resources - many resources, initially, will be in short supply but can be obtained from other parties. Time can be expanded by hiring others. Further capital can be obtained by selling shares and so on.
Examples of "Unbound" businesses include the following:
- Internet businesses - these are largely unlimited by time and geography and are comparatively cheap to grow compared to (say) building a capital-intensive factory.
- Chains of businesses (Franchises) - these might be a chain of stores, restaurants, coffee shops rather than a single one. They breed by offering a business model to other parties who can bring along their own time and Capital.
Neither the Bound or Unbound approaches are right or wrong, sexy or unsexy, bold or wimpy.
They are just different and equally deserving of life and both are necessary for our economy to be well balanced.
If you later want to get bigger, an early choice of getting into a “bound” business may severely limit your future prospects if it is not capable of later growth. So choose wisely now.
You can probably convert an Unbound business into a Bound one at any time but it will likely be harder to convert a Bound business into an Unbound one.
Reflect on on how Bound your business is and how you might overcome the more serious of these Bounds so that you can get onto a growth track. If you can’t, maybe you should morph (pivot) into something else and have another go. (More on this below)
Any business and its departmental sub-components can be put into 1 of 4 boxes by measuring profit potential and growth potential.
Use the Boston Consulting Group Matrix to put your business into 1 of 4 categories; cash cow, dog, star and question marks (see the Boston Consulting Group Growth Share Matrix article).
If your existing business is a dog or a cash cow, you can stop thinking about big revenue and profit growth now unless the restrictions are only there through your present management systems. If you seriously want to grow, you will have to think about a pivot – as we discuss a bit later.
The same will apply to sub-departments /products in your business. The dogs are best got rid of. The cash cows are valuable supplying money and resources to the parts of your business that can grow.
Unless and until you have a business that is in the “star” or possibly the “question mark” cells of the BCG Matrix, you likely don't have business that can grow and you may as well face up to it now.
In this situation, you can decide to “pivot” and go down a new industry route.
There are six principal types of bottlenecks that will limit your ability to grow. If you are not already familiar with the Theory of Constraints then you should pause and have a quick read of the TOC Article here so that you can follow the discussion below.
Back with us?
Now think about your business’s constraints.
Firstly, there is likely 1 or 2 that apply to the whole business. You will usually have either a Demand or a Supply constraint on your business.
A Demand constraint means that you do not have enough customer demand for the volume of goods you can produce/supply. You need to improve the sales side of your organization.
A Supply side constraint means that you can not produce enough to satisfy customer demand so you need to ramp up production. Manufacturing businesses in particular are "lumpy" and can't just scale up smoothly.
Secondly, if you are large enough, you will have discrete departments like sales, manufacturing, distribution etc. Each of these departments will have its own constraint(s) governing their ability to grow productivity.
From the TOC article mentioned above, we know there are six types of constraints:
- Physical constraints or the availability of resources.
- Managerial policies and procedures.
- Market and marketing based constraints.
- Human and equipment capabilities.
- Quality and quantity of inputs.
- Suitability of operating techniques.
Pause and put some thought into your business’s constraints.
There may not be too many under each category.
The trick here is not to look so much at improving what you have but rather, to see if they will prevent you from growing the way the business is presently configured.
Pause and Reflect
You may have speed read though the material above but you should now really take the opportunity to pause and reflect.
The reality checks built into this article will govern both you and your business’ ability to rapidly grow your profit.
Don’t rush through this because a poor step now can condemn you to wasting a lot of effort if your business can’t grow enough.
Answer these questions;
- am I personally ready to tackle DP365?
- is there enough talent and interest in the team for us to have a chance at this?
- is the company culture such that people are used to playing a role in decision making and the implementation of those decisions or will it have to be driven by senior managers in the short term at least?
- are there any emotional boundaries that I don't want to cross that are sufficient to make the growth process likely to stagnate?
- is the business, or some subsection of it, a "star" or a "question mark" so that there is headroom to grow?
- are there any obvious constraints that will "kill' the profit growth? There certainly will be constraints but we are looking here for ones that just can't be got around.
Once you have reached this point, you have seen how to tell if;
- you are emotionally ready for your business to grow
- the constraints on your business are such that you can grow and
- your business is in a growth quadrant on the Boston Consulting Group Matrix.
If you fail one or more of these reality tests, this is not fatal.
But it does mean that pouring energy and resources into your present business is not likely to get the results you want.
If you are still interested in growing, consider changing the business type that you want to operate. Is this a new business or some sub department of your overall business that does show potential?
What reality tests did you fail above and what might be done to overcome them? This might be some business activity quite different – which is radical and fairly risky if it is new ground for you.
It might be an extension of what you are already doing.
Either way, you should now go back to the start of the profit planning process and rethink your goals and redo the reality checks until such time as you have a business that can grow within your comfort zone.