Reduce the Risk of Business Growth

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By taking on the the mindset of Ulysses S. Grant, you can reduce the risk of business growth and increase the likelihood of success. 

It’s hard to grow a business. Most attempts fail. At times, miserably.

As a result, we tend to avoid or at least minimize our risks when creating strategies for business growth; holding tightly onto the tried and true. Even when the “tried and true” starts losing its luster.

One of our clients owned a company in a mature industry. Over time, his services had become a commodity forcing him to compete on price; a strategy he would never win.

To help grow his business, we performed an extensive review of the company and its market; searching for adjacent opportunities that made sense to pursue. We looked at the company, its sales channels and operations and then recommended three different strategies, each one with its own set of risks and rewards.

The owner chose to do nothing; the risk of growth was, for him, too great.

As I write this I’m finishing another of Jeff Shaara’s books on the Civil War. While writing about General Ulysses S. Grant he highlights Grant’s habit of learning from his mistakes and his ability to change strategies when necessary.

Unfortunately, most owners are not like Grant. In fact when business initiatives fall short of expectations owners usually respond in one of two ways: first, more resources (time, energy and money) are invested as the business “doubles down” on what hasn’t worked or second, the plans are set aside with owners making the internal decision, “never again.”

For the record, both responses typically produce lousy results.

There is a better way; one that manages the risk of change while allowing the company to “pivot” when the current strategy stops working.

When helping clients with their business growth we perform an initial evaluation in which we consider a number of possibilities that are then measured against the capabilities of the client company. We’ll look at adjacent markets, distribution and sales channels, costs; all before making our final recommendations.

We’ll then produce an overall budget. And from this we’ll create a monthly cash flow projection, showing not only the total cost of the initiative but the actual costs as they are incurred. This allows owners to call things off or change direction if the results differ from what is expected.

Think of Grant’s ability to learn from his mistakes.

Let’s say, for example, that you have decided to pursue a growth option that is expected to last for two years and requires an investment of $480,000. For most, the amount is assumed to be paid evenly over time, looking like this:

Business Growth

Standard view of business growth

Realistically, however, costs are typically made to support activities, some of which require more capital than others. For example, the initial research (done early in the process) costs less than new equipment or personnel. Consequently, a better picture of the cash requirements would be this: If the owner decided to cancel the initiative after three (3) months, she would be out $30,000. Not a small sum, but significantly less than the $480,000 that was budgeted!

business growth

Actual view of business growth

Let’s take this down a step. 

Not long ago one of my clients wanted to hire a Chief Operating Officer for her financial service firm. She struggled with the investment this would require; a salary of $180,000 plus benefits. I reminded her that a 90 day probationary period was fairly standard and that her risk was closer to $45,000 (three month’s salary) and even less if she had the right metrics in place. 

Together, we created milestones that were used to evaluate progress every two weeks; essentially establishing performance benchmarks to show how the new executive was contributing to the firm’s growth. These helped her manage the financial risks of her strategy and today both are working to together to create a stronger practice.

Managing the risk of growth starts by evaluating options and then creating a realistic budget for the one being pursued. But it doesn’t end there. Owners also need the discipline to learn throughout the process so that, like Grant and other successful people, they will apply what they have learned to their project thereby increasing the possibility of success.

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