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Tag Archive for 'differentiation'

Forewarned is Forearmed: Understanding the Small Stages of Business Growth-Part 1

In our experience, business owners tend to approach growing their company as one long continuum from the day they open to the day they retire.

And, while growing the business may seem like a foregone conclusion for most entrepreneurs, they soon find out that the reality of growth is much more organic, much messier and far more likely to create new challenges that will stress the owner and his or her management team in ways they never imagined.

We often have the opportunity to see this firsthand as we help restorers grow their businesses by turning on their “marketing engine.” Even so, we are emphatic that “handling the new business will be harder than getting the new business.”

Given the fact that most restorers find growing their business in today’s market one of their biggest and most difficult challenges, they have a hard time accepting this statement. Perhaps they are so focused on having found a new way to grow that they figure that handling the growth will be a nice problem to have and they’ll figure that out as they go along.

This is a problem. They fail to realize there are distinct stages of growth, with different challenges, stressors and potential outcomes. Growing companies can greatly profit from advanced knowledge of the challenges they are likely to face at each step.

Facts of business

Before we get into these distinct stages, let’s look at some general truths about growing companies. The most important is that “growth increases complexity.” What most owners do when confronted with increased complexity is to throw people at the problem, meaning that they simply hire to add the necessary capacity.

But what is the real effect of this strategy? After all, the point of growing a business should be for the company to produce more net profit. If the increased gross profit — and therefore net profit — of a growing business is simply consumed in the salaries and related overhead expenses necessary to handle the growth, then all that a business owner has accomplished is to create a bigger, more complex set of headaches for the same net profit as before.

So, while some new labor resources may be required, the reality is that growth and its attendant complexity requires changes in the way the company operates — a new paradigm that requires new processes, systems and procedures and new ways of measuring and thinking about the business.

All of this requires a transition away from the old, comfortable, safe and yet moribund paradigm that got the business from Point A to Point B, but will not take the company from Point B to Point C, something that is likely to be extremely uncomfortable for the owner and many employees who simply may not be able to make the transition.

Another truth is that for companies to grow, the owners and management team will have to learn new skills to support that growth. Companies embarking on a growth strategy must consider how they will gain this education. There are several industry specific consultancies and programs that can help dramatically, but an intensive self-study program is highly recommended, starting with Peter Drucker’s “The Practice of Management.”

This new, more complex, more demanding paradigm will require not only a revision of all of the company’s processes but also a way of codifying those new processes and integrating them into “the way we do things around here.”

It will also require running the business “by the numbers,” and an owner and key managers must have job and overall profitability numbers in near real time in order to insure that margins are met. For this reason, growing restoration contractors simply must be looking at “enterprise” software solutions as the software backbone to support their growing companies.

There are many theories and models of small business growth, and one of the classic papers on this topic was published by Neil Churchill and Virginia Lewis in the Harvard Business Review. Understanding the stages of small business growth helps owners understand what to plan for, what changes there will be in the company’s structure, the owner’s responsibilities and focus and can serve as a way of diagnosing problems that arise.

This month, we will look at the first two stages of growth, and next month, the final three.

Stage 1: Existence

This is the start-up phase where the focus here is almost exclusively on getting enough business to start your business model.

Overhead costs will be, or should be, at a minimum because the owner will be performing most tasks personally with the help of a few employees of average skill. There will be few, if any, formal systems or planning processes as the business will be run largely “in the owner’s head.”

In the very beginning, the company’s very minimal requirements and nascent capabilities often allow the company to generate business relatively easily. This is especially the case if there is an existing business (such as a carpet cleaning operation) that can support the basic needs of the owner as he begins his foray into the brave new world of restoration.

The first crisis for a start-up will likely be managing cash flow. This is often the biggest problem and impediment to growth, causing owners to develop skills in accurate estimating, efficient management of company and sub-contractor labor so that jobs are profitable, negotiating with adjusters and policyholders for payment, understanding the impact of customer service on getting paid, etc.

This is an extremely demanding phase for any business, but perhaps even more so for restorers given the peaks and valleys nature of the workflow and the challenge of keeping a solid team on staff to do the work properly and profitably.

It is easy for restorers at this stage to want to move too fast in terms of growing their organization without putting into place the necessary systems, processes and procedures.

The people selected may be chosen more for industry familiarity and the “show up” factor (they just showed up on my doorstep — must be serendipity) than possessing the necessary management or other skills that the company will require to grow.

This can also be a time of really challenging stress for business owners, especially if they don’t have a carpet cleaning or other business to fall back on.

Stage 2: Survival

The good news here is that the company’s basic premise has proof of concept. The crisis is now one of generating a necessary profit as the company grows to the next step.

Owners are likely putting out fires on a daily basis and the toll of the start-up phase may have drained them of energy and financial resources.

If the business is growing, the problem becomes a very serious one — can the company generate enough cash flow to stay in business and add the necessary fixed expenses (equipment, trucks, technicians, first managerial position such as Project Manager) as well as maintain the current capital assets and replace them as they wear out?

Again, in the restoration industry this can be dramatically exacerbated by unforeseen circumstances like “The Winter That Wasn’t of 2011-2012″ where the expected work from frozen pipes, ice dams, etc., never materialized.

Keeping a talented crew together at this point to handle the peaks in the work is extremely challenging, and many companies at Stage 2 are unable to keep everyone working on a full-time basis. This creates a quality problem as well as massive training problems, as there can be a revolving door of technical talent.

The Project Manager at this stage is a key employee, and owners typically do everything possible to keep this person in place, often ignoring whether or not they have (or can develop) the necessary managerial qualities that will help the company grow.

At Stage 2, the company is still relatively simple; systems are still rudimentary at best, requiring the involvement of the owner in practically every decision. Planning will mostly revolve around cash flow forecasting and it is now critical that the company utilize a basic accounts receivable process to get paid as quickly as possible.

The crisis of cash flow at this stage also creates a dangerous potential pitfall for restorers. When a company is desperate for cash, it is easy for the emotional demands of running the business to spill over when negotiating payment with adjusters.

If Stage 2 companies manage their challenges effectively, they may grow to Stage 3. However, many Stage 2 companies do not meet these challenges and stay in a perpetual crisis where the owner wonders why he ever got into the restoration business in the first place. Given the boom and bust cycles of the industry, he may lurch onward from one fortuitous job to the next, hoping that the lean times in between doesn’t exceed his ability to cover payroll and stretch his suppliers.

Our experience is that many restorers can stay in this place for a long time — even 20 years — never doing what is necessary to understand and break free of Stage 2 and move on to Stage 3.

But if they are able to get past Stage 2… they will find Stage 3 quite interesting. Stay tuned for Part 2, Coming Soon!

Free Webinar: The Strategy and Tactics of Marketing

The Strategy and Tactics of Marketing webinar on April 19 will help you understand what makes your company different and better and how to create a brand and a message out of that knowledge that will provide compelling reasons for targets to work with your company. Tactical Marketing Programs will also be discussed illustrating ways to create programs to help your targets get what they need by using your company.

This webinar can help if:

  • You haven’t yet discovered what’s different and better about your restoration company.
  • You know that your salespeople could be communicating more effectively to targets in a position to hire, refer or work with your company.
  • You’re looking to develop marketing programs that set your company apart from your competition.

Click here to register for this free webinar on Tuesday, April 19 at 11 a.m. Central Time.

Two Free Sales and Marketing Webinars Jan. 6

We have two free webinars coming up Thursday, January 6, that can help jumpstart a successful 2011.

At 10 a.m. is “The Strategy and Tactics of Marketing.” This Webinar helps you understand what makes your company different and better and how to create a brand and a message provide compelling reasons for targets to work with your company. Tactical Marketing Programs will also be discussed, illustrating ways to create programs to help your targets get what they need by using your company. Register here.

At 11 a.m. is “A Winning Process for Commercial Sales.” This webinar defines the commercial market and a winning sales process that will make penetrating this market easier, more efficient, more effective and less stressful than any of your other sales activities. Register here.

These Webinars are an excellent opportunity to get a feel for the types of things we’ll be covering at our Sales Mastery for Restorers  and Weathering the Storm Commercial Marketing seminar programs. And there’s still time to register for the upcoming Atlanta sessions the week of January 24. Visit the BDA Web site for more information on either or both programs.

Why Be Different?

What is different about your company in the eyes of the people that you are trying to sell to? This is a crucial and fundamental element of your marketing plan, and yet most restorers give almost zero thought to it.

How do I know this?

Because all of their salespeople sound the same. They always talk about their company and how great they are. They always hit the same points. They always say the same thing. It doesn’t matter who they are talking to. Policyholder, agent, adjuster, real estate agent, hygienist, plumber – there’s no difference.

Given that most restorers’ targets are already using another restorer, not demonstrating a difference translates as, “Well, no reason to make a switch here.”

And, in the wonderful situation where there is no “incumbent supplier” (meaning no competitor) this same “me, me, me” talk gives the prospect no reason to consider working with a new restorer.

So a successful sale starts with being different. That’s why discovering, understanding and articulating that difference is the first thing we do when we start working with a restorer.



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