Over the last ten years, to assist owners of businesses, I’ve tried to tackle all aspects of scaling a business, whatever your starting point. We’ve addressed positioning, sales processes, marketing playbooks, product launches, executive compensation, saleability tests, margin and pricing opportunities and many HR related issues. We’ve looked at how shareholder value is created and how acquirers and investors calibrate that value. We’ve even dived deep into buying other companies. In all cases I’ve tried to codify an approach, an operational blueprint to help you succeed. To help you build shareholder value. And we practice what we preach every day as we help our clients scale. Our clients tend to fall into two camps, the scaling from $10m to $75m and then the larger clients scaling from $200m to $1 Billion plus. This post focuses on the smaller range.
This smaller range is a vital component of US entrepreneurship and requires a specific technique to fulfill the potential of the business. The exercise that must be done from time to time is a re-calibration. If you like, the equivalent of zero-based budgeting for strategy. We call it Zero-Based Strategy. It takes away the clutter and really focuses on what you are trying to achieve. The outcome of this exercise is to establish the reality of where you are on your journey of scaling. If done well, it produces a set of practical actions that aligns all of your activity to reconnect with your big audacious goals. It allows you build an immediate priority list to work on the right stuff.
Think of it as a commercial, financial, market and strategic audit of your current position. The secret of this exercise is to define the questions to be answered (that’s where the know-how comes in). Most management teams are approaching a new line in the sand for the very first time.
Think of an entrepreneur approaching the $10m sales threshold, or the 20-employees threshold (note the statistics – 5.7 million US companies run a payroll, and the # employing 20 or more is a shockingly small 596,000). Most entrepreneurs approaching that line, have never been there before. What changes need to happen at $10m to make it fit for scaling to $50m? Or think even bigger, it could be a management team approaching 200 employees. What changes do they need to consider to get to the next level? Geographic structures, matrix organization structures, product divisions, sales strategies may all need to change to enable the business to service customers at a higher scale.
So, scaling must involve stopping from time to time to assess the reality of where you are on the map of success and deciding where to go next. Why is this different from a strategic planning process? Well first of all most businesses in the $10m to $75m sales range don’t execute a strategic planning process for one thing, and those that do, fail to really connect them to real operational Monday morning actions.
A Zero-Based Strategy approach examines exactly where you are at today and calibrates all the gaps that are missing and puts them in order of priority. It’s an urgent review of all key elements of the business and it delivers a new set of priorities based on the latest data points.
It is impossible to build a set of questions that all Zero-Based Strategy exercises must address. However, I’ve noted below a set of guidelines that will help you build a clearer picture of your current situation and therefore what should come next.
Key Questions of Zero-Based Strategy Exercises (be as specific as possible in every answer)
- What are the shareholder objectives for this business today?
- What projects have you defined that move you closer to achieving those objectives?
- What is the specific need in the marketplace that you are trying to satisfy?
- Is this market big enough to satisfy your shareholder objectives?
- What gaps in your team is preventing you delivering the best possible service?
- What is the profitability of each of your products or services?
- If you exited those low profitability products/divisions what would you do with the extra resources released?
- Does your range of products attract the same level of positive feedback from customers?
- What could you do in the next 6 months to generate more cash from within your business to invest in more productive ways (e.g. reduce Accounts Receivable to generate more cash for new products)?
- What activity could you stop tomorrow that the customers wouldn’t notice?
- What is the biggest complaint from customers that you could fix if you formed a SWAT team to fix it?
- What aspect of your competitor’s business do you admire most and what are you doing about it?
- What are the three biggest factors impacting your customer’s business and how could you help them deal with them?
- What issue(s) that you feel passionate about are not being talked about by your industry and how could you change that?
- How could you maximize the revenue from your biggest customer both inside that customer and by leveraging that customer, maximize your revenue in the general marketplace?
- How do you measure staff morale?
- What specific measures are you taking to address why your employees come to work namely autonomy, mastery and purpose? (see Drive, Dan Pink)
- What is your formal approach to finding new talent at all levels?
- How credible are your sales forecasts when consistently compared with the actual results?
- What are the most effective ways you win business?
- What is the basis for your reward structure across all employees including shareholders?
- Based on relevant M&A databases, what is the shape and size your business needs to be, to achieve financial stability from an exit.
The problem most entrepreneurs struggle with is choice. What to do next? What business to double down on? What business to get out of? They struggle with priorities. Projects and activities blend into stuff. Each day flies by. They find it difficult to pull themselves back from the detail to examine the big picture.
The reality is that every business strategy starts with a definition of who you want to be? You perceive an under-serviced need and you build a product to satisfy that need. This is where the “why” is baked in. This passion drives why you are in business. You should feel strongly about how you are going to behave to satisfy that why and the specifics of your market should direct you towards what you are going to sell.
Once this exercise is complete, it becomes easy to see your priorities clearly. All activity from that point onwards develops a symbiotic feel, bringing a new-found power and effectiveness to your team. That is until you feel the need to conduct another Zero-Based Strategy exercise when it’s time!