There are many reasons why business struggle to grow. However, many of them are internal and can be addressed with the right focus, strategy, and discipline.
Growing a business is hard. Fewer than five percentof all businesses in the US grow to be more than $1 million in annual revenues. And fewer than one percentmake it to $10 million. There are many reasons why companies fail to scale:bad timing, a poor economy,ruthless competitors, or shifts in underlying political orcultural trends.
However as a business coach, having worked with dozens of companies ranging from early stage startups to successful businesses with hundreds of millions in revenue, I find that most companies fail to scale because of internal reasons not external ones.
Here are the most common problems I see. Addressing these, you'll have a much better chance of reaching your organization's true potential.
1. Dysfunctional, or non-existent, leadership team
Often, I find that the leadership team is not functioning well, if there is one at all. While a visionary Founder is needed to get the company off the ground and a great CEO is needed to lead the growth, without a solid team of key executives to head up the various functions, a company will quickly reach a growth ceiling.
One of the first things I do with new clients is to help the Founder/CEO envision the company at the next level--typically 3-5 times the current size--and have them design the ideal leadership team. By envisioning the departments, functions, and leadership qualities of their ideal teams, we set a clear goal to guide our talent acquisition and development.
2. People not aligned around a set of core values
Nothing kills a company's growth prospect more than if the people do not share a common set of core values. Your values define your priorities and the trade offs you're willing to make. If people are not aligned around a common set of values, they will pull in different directions and undermine each other's efforts.
I'm a strong believer that core values are emergent rather than chosen. I have teams choose values they feel are representative of their company and then we test them by finding examples of them at work in the choices they've made, especially the tough ones. Once we have a core set, we promote them in the hiring process to reinforce and propagate them within the company.
3. Poorly defined core customer, core product/service, and core channel
The irony of scaling is that the faster you want to scale, the more you need to narrow your focus and the less you need to offer. By choosing a core customer, product or service, and channel, you increase your chances of success because you make it easier to optimize, streamline, train, and communicate.
Many companies want to sell anything to anyone in hopes of getting more business. However, it's better tozero in on a core customer and target a core product or service so that you can streamline and optimize to increase our growth rate and profitability.
4. Too much drama in your critical processes
Every business has 5-8 critical processes that give it a competitive advantage in their market. If these are not running smoothly, it means you'll scale our problems when we scale the business.
Start by looking at the stream of value that is delivered to your customer and identify the key areas in which the business needs to be successful in order to win. Once we have the top 5-8 identified, we can then look at removing waste and inefficiencies without comprising value.
5. Failure to master your cashflow
Everyone knows the saying, "Revenue is vanity, profit is sanity, and cash is king." When you're looking to scale, this catchphrase is twice as true. Many companies grow themselves in a cash crunch because they failed to determine how much additional cash would be consumed by marketing and sales costs, additional raw material and inventory, and hiring and training new staff.
Creating a detailed cash flow map, showing how cash moves into and out of your business is the first step to getting your hands around your finances. Then, you can start making changes to your standard practices in order to optimize your receivables and liabilities, improving your position and reducing the cash demands that will be put on you as you scale.
While getting these right won't guarantee success, they can greatly reduce the chances you'll get stuck. And usually, you don't need to address them all at once. Find the one that is currently constraining the business the most and start there. But keep an eye out for the next bottleneck, and be ready to refocus your efforts.
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I bring a wealth of experience and insight as a seasoned business coach who has worked with numerous companies across various stages of development, from early-stage startups to successful enterprises with hundreds of millions in revenue. My expertise is grounded in hands-on involvement with these businesses, allowing me to gain valuable insights into the challenges they face and the strategies that contribute to their growth.
Now, let's delve into the key concepts addressed in the provided article:
Common Reasons Why Businesses Struggle to Grow:
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Internal Challenges vs. External Factors:
- The article emphasizes that, in the author's experience, most businesses struggle to scale due to internal reasons rather than external factors like bad timing, economic conditions, competition, or societal trends.
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Leadership Team Dysfunction:
- A dysfunctional or non-existent leadership team is identified as a significant hindrance to growth. The article suggests that a visionary founder and a capable CEO are essential, but a solid team of key executives is crucial for sustained growth.
- The importance of envisioning the company at the next level and designing an ideal leadership team is highlighted.
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Shared Core Values:
- Lack of alignment around a set of core values is noted as a major obstacle to growth. The article emphasizes that core values define priorities and guide decision-making. Misalignment can lead to conflicting efforts within the organization.
- The author suggests that core values should be emergent and tested through real examples, with an emphasis on promoting them in the hiring process.
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Focus on Core Customer, Product/Service, and Channel:
- The irony of scaling is discussed, emphasizing the need to narrow focus as the business grows. Choosing a core customer, product or service, and channel is advocated as a strategy to optimize, streamline, train, and communicate effectively.
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Streamlined Critical Processes:
- The article highlights the importance of having 5-8 critical processes that give the business a competitive advantage. Issues in these processes can scale into significant problems for the business.
- The recommendation is to identify key areas in which the business needs to succeed and then address waste and inefficiencies without compromising value.
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Cashflow Management:
- The saying "Revenue is vanity, profit is sanity, and cash is king" is referenced to underscore the critical importance of mastering cash flow, especially during scaling.
- The advice is to create a detailed cash flow map to understand the movement of cash in and out of the business. This allows for optimizing receivables and liabilities and reducing cash demands during scaling.
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Prioritization and Incremental Improvement:
- The article suggests that addressing all the identified issues at once is not necessary. Instead, businesses should focus on the most pressing constraint and gradually work on others.
- The importance of continuous monitoring for potential bottlenecks and a flexible approach to refocusing efforts is emphasized.
In conclusion, the provided insights draw on practical experiences working with various businesses and offer a comprehensive guide to addressing internal challenges for sustained growth.
