planning for growth
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Growing a successful business in challenging times
Booth Ainsworth: Dave WilsonSmart Fox Solutions: Trevor Budd & Jason Gaunt
Tuesday 10 May 2011
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Growing a successful business in challenging times• A series of seminars
• You get what you plan for, so plan for growth
• Subsequent sessions to include– Customer acquisition, retention and value maximisation
strategies
– Alternative growth models: mergers, acquisitions, joint ventures etc
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Growing a successful business in challenging times – a case study• Fred Bloggs Ltd
• A fictitious reference point for the seminars
• Aggregation of key learnings and insights across Booth Ainsworth and Smart Fox Solutions
• Based on real situations
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Aim high: set stretch targets
• Fred Bloggs had a current year plus 8% objective
Year 0Actual
Year 1Objective
Year 2Objective
£4.4m £4.8m
Rev
enue
targ
ets
£4.1m
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Aim high: set stretch targets
• Fred Bloggs had a current year plus 8% objective• It was the same 8% objective he missed last year and
the year before that
Year 0Actual
Year 1Objective
Year 2Objective
Year -1Actual
Year-2Actual
£4.1m £4.4m£4.1m£4.8m
Historic Growth Objective
£4.0m
Rev
enue
targ
ets
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Planning for growth
It’s a systematic process
Know where you are going
Understand your current business
Are you ready for growth?
Focus on your key customer drivers
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“It is not necessary to do extraordinary things to get extraordinary results”
Warren Buffett
“If you do again this year what you did last year, expect the same results”
You get what you plan for
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What do we see?• Vague or uncertain business direction • Struggling to grow and develop• Senior management, directors or partners pulling in
different directions• Businesses hitting a glass ceiling as they outgrow
their internal capabilities• Owners struggling to manage an inexperienced sales
and marketing team • Ultimately all of these impact on shareholder value
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Why many attempts to grow fail• Poor leadership• No (or poor) research & analysis undertaken• Lack of planning• Full range of opportunities not considered• Lack of communication• Lack of training• Business not ready to grow• Poor execution• Existing customers neglected• Lack of measurement and review
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Dispelling some myths...• Growth cannot be achieved in periods of recession• Growth can only be achieved by spending more
– Focus on zero sum budgeting not just budget plus 10%
• 50% of sales & marketing spend is wasted . . . just not sure which 50% – Often it’s higher, but all spend can & should be measured– Look in the mirror rather than out of the window
• Sales & Marketing activity are at odds with each other– All business development activity should be seamless
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Planning for growth
It’s a systematic process
Know where you are going
Understand your current business
Are you ready for growth?
Focus on your key customer drivers
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Grow Model
Where do you want to be?
Where are you now?
Options to get there?
Implement and Monitor
Goals
Reality
Options
What next?
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Getting from A to B • Work out the components
Please refer to full version in the hand out
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Planning for growthIt’s a systematic process
Know where you are going
Understand your current business
Are you ready for growth?
Focus on your key customer drivers
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What is growth about?• Employing more people?• Owning more plant and machinery?• Having more customers?• Being in more regions/countries?• Having a bigger market share?
• Or is it simply...Growing a sustainable profit stream for your business
G
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What are your growth options?
Market penetration
• Gain market share• Win competitors customers• Win old customers back
Product development
• New products in to existing markets• Increased revenues from existing market segments• Exploit knowledge of customer needs
Market development
• Existing products in to new markets• Opportunities include new geographies, new
markets or new uses for existing products
Diversification• Higher risk approach• New products in to new markets• Brand extension
Organic growth
Acquisition
Strategic Venturing
Joint Venture
O
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Aim high: set stretch targets• Fred Bloggs had a current year plus 8% objective• It was the same 8% objective he missed last year and
the year before that
Year -0Actual
Year 1Objective
Year 2Objective
Year -1Actual
Year-2Actual
£4.1m £4.4m£4.1m£4.8m
Historic Growth Objective
£4.0m
Rev
enue
targ
ets
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Aim high: set stretch targets• But...what he really wanted was 25% YOY growth
Rev
enue
targ
ets
Year 0Actual
Year 1Objective
Year 2Objective
Year -1Actual
Year-2Actual
£5.1m£4.1m£4.0m
£6.4m
Historic Growth Objective
£4.1m
In our experience 20-30% YOY growth is achievable in 4 out of 5 SME’s
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Planning for growthIt’s a systematic process
Know where you are going
Understand your current business
Are you ready for growth?
Focus on your key customer drivers
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Where are you now?
Where are you now?
R
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In-depth analysis
• In depth understanding of current customer base– Sales per customer
– Gross profit per customer
– Average lifespan of clients
– Leads . . . . . . and conversion rates
• Focus on larger customers – 80/20 rule• Take the time to understand your target market
– Especially factors influencing the purchasing decision
• Create a snapshot in time .. your baseline
R
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In-depth insights
Who are my most profitable
customers?
Which areas offer higher growth and
higher margins?How did we win these customers
originally?
What benefit does our
product or service deliver?
What else could we
supply to our customers?
Why did that customer leave
us – what changed?
Please refer to full version in the hand out
What factors influence
buying decisions?
How is my market
developing?
How do my customers rate
us vs. the competition? How can I know
what my customers want
before they know what they
want?
What does the purchasing
process look like?
What are my competitors up
to?
R
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Fred Bloggs - Baseline
• Last financial year, total revenue generated £4.1m– £3.6m from existing customers – £0.5m from new customers
• Customer base– 1,000 leads which generated 125 new customers– 900 retained customers– Average tenure of 4 years– . . . . so lost same as gained
• Total sales & marketing spend of £390,000 (incl. people costs)
R
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£0.5m new
revenue
£0.3m shortfall
£4.4mObjective
Fred Bloggs - The challenge
£4.1MLast year actuals£3.6m
retained revenue last year
R
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Planning for growthIt’s a systematic process
Know where you are going
Understand your current business
Are you ready for growth?
Focus on your key customer drivers
Are you ready for growth?• Consolidate your existing performance• Ensure core business is still running well• Do not neglect existing customers• Understand your target customer groups• Timing is critical
– Can your business cope with expansion or is it at capacity?
– Do you have the resources and systems to carry on existing business whilst targeting expansion?
– Anticipate the bottlenecks and pinch-points
R
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How are your foundations? R
Financial
Cashflow
Working capital
Cost base
Funding availability
Operational
Premises
Facilities
Capacity
Systems
Processes
People
Quality
Capability
Capacity
Loyalty
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Planning for growthIt’s a systematic process
Know where you are going
Understand your current business
Are you ready for growth?
Focus on your key customer drivers
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Focus on the key drivers
• Growth in sales and profits can be achieved in 6 ways
Number of customer leadsx
Conversion rate %=
Number of new customers+
Number of existing customersx
Attrition rate=
Total number of customersx
Number of transactionsx
Average sales price=
Turnoverx
Margin=
Profits
1
2
3
4
5
6
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Look at some numbers . . . Number of customer leads
xConversion rate %
=Number of new customers
+Number of existing customers
xAttrition rate
=Total number of customers
xNumber of transactions
xAverage sales price
=Turnover
xGross margin
=Profits
500x
25%=
125+
1,025x
12%=
1,027x2x
£2,000=
£4,108,000x
30%=
£1,232,400
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With just a 10% increase550
x27.5%
=151
+1,025
x10.8%
=1,065
x2.2x
£2,200=
£5,154,600x
33%=
£1,701,018
Number of customer leadsx
Conversion rate %=
Number of new customers+
Number of existing customersx
Attrition rate=
Total number of customersx
Number of transactionsx
Average sales price=
Turnoverx
Gross margin=
Profits
500x
25%=
125+
1,025x
12%=
1,027x2x
£2,000=
£4,108,000x
30%=
£1,232,400
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Profitability calculator• A 25.5% increase in turnover
• An incredible 38.5% increase in gross margin
• Even at 5% improvement, the overall increase in gross margin is 18%
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Seminar 2: Driving Sales & Marketing activity
Lead generation Lead conversion Up-sellCross-sell Retention
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Focus on your key customer driversIncremental improvements much more achievable
Planning for growth
Are you ready for growth?Anticipate pinch points and operational requirements
Understand your current businessCustomer insights = competitive advantage
Know where you are goingAim high and set stretch targets
It’s a systematic processSo understand the components in that process
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Questions and AnswersRemember the ‘Oracle of Omaha’:
“It is not necessary to do extraordinary things to get extraordinary results”
Warren Buffett