Planning for growth

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





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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





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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


£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


£4.1m

In our experience 20-30% YOY growth is achievable in 4 out of 5 SME’s

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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?

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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)

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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

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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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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

Planning for growth

Business

Transcript of Planning for growth