Plan ahead for a profitable venture

Sally Laker, managing director of Mortgage Intelligence, says that clear objectives and a coherent strategy can see an unprofitable business grow into a successful one

Although Richards is not writing about the mortgage sector, her comments are applicable to anyone trying to grow their business – whether they are the owner or a shareholder – and there are lessons that we can learn from her experience.

What distinguishes small businesses that grow and prosper from those that don’t? Lack of objectives is an issue, with many companies simply muddling through or purely focussing on sales growth. What they don’t realise all too often is that sales growth or increased turnover brings with it issues of managing growth that require a coherent strategy. An expansion of turnover brings with it increased costs in terms of labour, working capital and overheads. So what is often not realised is that a turnover increase on it own can simply deliver lower profitability and more problems for the business.

When the business starts to expand, those in charge without a strategy turn from being managers to meddlers. They ought, at expansion stage, to be delegating and putting in place a management team. Most bosses of their own firms or relatively new businesses work long hours, with nearly a third saying they do at least 60 hours a week. But once the business begins to grow, these same managers end up working more hours, spending the extra time checking and overseeing the work they are already paying others to do. Instead, the manager should be doing more long-term thinking and less of the hands-on working.

At this key juncture in the history of the business, most of the potential to add value to a growing business lies in shaping its future competitive strategy. But reliable studies show that managers spend only about a tenth of their time on planning the future direction of the business, preferring to spend nine-tenths of their time on continuing to oversee day-to-day operations. Yet in reality this approach only ever improves business performance quite marginally.

The manager can learn a good deal from the analogy of the parent who must allow a growing child to gain its freedom and to prosper on its own. Once the child has reached a certain level of development, it will function much more effectively given independence and space to develop. Much the same can be said of growing companies and the employees within those companies. The pain a parent feels on seeing its child achieve independence and no longer being totally reliant on the parent is certainly mirrored in the growth and increasing autonomy of functions and personnel within a business moving from start-up through to adolescence and onto maturity.

The problem with business growth is that it is not always predictable. Just like children, businesses grow in fits and starts. It is not a smooth, trouble-free process going through the phases of infancy and then adolescence, to full adulthood and there are often many crises on the way. However, with the crises come, as with child rearing, the various rewards and opportunities.

Many businesses wobble or, even worse, do not achieve their growth potential because the manager remains like possessive parents and can not allow their offspring to develop. They continue to fuss and protect, and end up with an immature ‘big small’ company, rather than a mature ‘small big’ company. In the same way as a parent might think the only way to deal with the progress from childhood to adulthood is simply to buy larger clothes, the manager who won’t stand back from his employees thinks that the problems of a growing business can be solved by borrowing more, or getting bigger, flashier premises, or by hiring more salespeople. By constantly focussing on day-to-day needs, rather than the long-term direction of the businesses, the ‘parent’ ends up with a ‘child’ that is over-dependent, immature and unable to cope with the demands of the real world.