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In the previous piece, we saw how growth and scaling are significantly different business goals. In this article, we’ll explore the imperatives for profitable scaling.
What makes scaling an exciting journey for any entrepreneur is the exactness of the outcome. With no room for ambiguity, scaling as an exercise is impossible without proper plans and structures in place. At its core are three transformations – business, operations and people. Let’s look at each of these:
1. Business transformation – To achieve this goal, it is vital for the business leader to set a clear path toward profitability with targets, and have the skin in the game to stick to the plan, even if it means saying ‘no’ to demanding customers. This is because rather than catering to individual needs, scaling is mainly about building universality of experience, where every customer gets the same treatment.
This does not mean that you ignore the customer – in fact, on the contrary, it means that you articulate your offerings and review your competencies based on customer needs and expectations. When you are scaling, you are not focusing on one or few customers but many, who approach you because they have the same needs. Your responsibility, therefore, increases and it is up to you to lead solutions to solve problems and offer solutions on a large scale. Customer centricity should be the hallmark of your business transformation.
2. Operations transformation – Time and again we read about how small businesses, despite their ability to be nimble, are notoriously anti-process in their way of functioning. When you decide to scale, you have to streamline efficiencies to such an extent, that your entire business becomes process dependent rather than people dependent.
By clearly identifying systems and functions at every stage of the product life cycle, delegating responsibilities to trained teams rather than individuals and planning for emergencies through feedback loops, you are ensuring no room for errors and providing yourself the opportunity to anticipate challenges. Something as simple as implementing a process to check on delayed payments can make a huge difference to working-capital dependent MSMEs.
Another key aspect is fiscal discipline. Since scaling is a focused approach, it is crucial to have an eye on both cash flow and cash stack, so that there are no leaks or shortages.
3. People transformation – Once a company starts doing well, the immediate impulse is to hire. From a scaling point of view, hiring indiscriminately is not helpful. Remember, the focus is the customer, and orienting processes to meet customer needs. The talent, including the leadership, are not the star of the show. Processes are.
As your business functions expand and become more complex, it’s important to have the right people to steer. As difficult as it is to let go of control, it is crucial that the top leadership does not micromanage – rather, it is crucial to gather inputs from hires who have expertise you do not. Their insights can alter the trajectory of your company.
Finally, as we’ve seen earlier, scaling is all about driving economies of scale. This is not possible without leveraging your network circle – be it with suppliers, service partners, channel partners and even your customers – an often-ignored ecosystem partner in collaborations. When you are able to increase your bargaining power, it is your profit margin that sings, which is what scaling is ultimately about!
(This article is part of a Featured Member Series on Growth Matters Forum published on 11 Jan 2022 – https://www.growthmattersforum.com/blogs/three-key-drivers-for-holistic-transformation-and-scaling)
What do companies that are global majors have in common? They are built on customer centricity as their core value. The focus here is not just to grow the customer base, but to also build a loyal cohort of repeat customers who want to come back for more.
In an era of instant gratification, meeting customer expectations is a daunting task for MSMEs who don’t have the financial means or the geographical footprint of global companies. Although an easy way out is to entice new customers, the pandemic has taught us that there are simply too many uncertainties in the environment to bank on the novelty factor as a sales strategy.
Sales, especially for B2B MSMEs, is heavily dependent on customer satisfaction and subsequent referrals. Let’s see how we can accelerate sales through customer centricity, justlike the big players.
The first and most basic principle to understand here is that sales acceleration is a numbers game. Our consulting work with established, large companies and startups has shown thatirrespective of the size of the company, the framework, the core principles, to reform the sales funnel remains the same, it is only the inputs that change.
Sales acceleration is the force which drives the business to a set speed, or in this case a target. Considering that the sales ambition is a predefined number, there are only two possible outcomes – either you achieve the target, or you don’t. If you’ve hit the magic number, even if you are facing bottlenecks that curb your velocity, you’ll still be out of the danger zone, much like the car that flattens out temporarily at cruise control.
What becomes critical, therefore, is having a planned structure or framework in place. If you advance without a plan, you will be left with defending a failed performance that leaves you with no learnings or motivation to move forward.
When you are in acceleration mode, you have to be very clear about what you want to achieve. Like all of life’s big questions with simple answers, planning for sales acceleration begins by defining your end state. And don’t forget that with customer centricity being the fulcrum of revenue growth, your strategy for activating the levers of sales transformation must not lose sight of what your customers need, particularly your existing ones.
It may seem very facile, but the conundrum of knowing exactly what the end state of a salesacceleration plan is, is something leaders of many young or small companies wrestle with just like the heads of giant corporations do when market dynamics propel them to eithergrab a larger share of the pie, or defend their position as a market leader.
When your end state is identified, the first step is syncing the leadership at the infancy stage of the plan itself. As a business leader, if you have delegated sales planning to someone else,it is time to step in and grab the steering wheel – your intellectual bandwidth is necessary toexecute the plan in the right direction.
Next, take a hard look at your sales pipeline. When sales acceleration is in motion, the conversion ratios that you are used to will change, as the plan intensifies efficiencies and streamlines processes to achieve a set target in a finite time period. You have to plan aggressively to increase funnel intake, manage leads and sales closures. It’s important that you have a firm grasp of the situation at this time, but do not micromanage.
The third, and perhaps one of the most critical steps, is to lay out the strategy for packaging value added services and repeatable selling. While it is important to win new customers tomeet the demands of your revenue target, you must ask yourself – how are you going to leverage the existing customers to drive sales acceleration? It is vital for you to have explicit programmes to manage and expand this cohort. After all, your existing customer is your best brand ambassador, whose referrals bring in the new customers that you aspire to have.
Some of the key account management imperatives to prioritise existing customers include special privileges, pricing and appointing dedicated resources. This aspect of pipeline management is especially crucial for B2B MSMEs, whose revenue stream depends onboosting renewals.
Simultaneously, I always advocate that for companies in the B2B space especially, it is important to implement a time and tested manufacturing principle for sales acceleration –the PDCA or the Plan, Do, Check, Act. When every business function or action, be it marketing or training is nudged to fulfil this cycle, you have a clear picture of what needs to be done to move the speed to the next needle.
If the PDCA routine is not common place, there will be a tendency to either erroneously inflate the outcome of the sales acceleration as a victory, or abandon the process by prematurely declaring defeat – neither of which is helpful to achieve the end state.
Sales acceleration is not merely about revenue – in my experience, I’ve often found it to be, what I call the ‘landing point’, a sort of inflection point from where the business suddenly develops clarity on what other efficiencies can be harnessed, how the drivers of sales and enabling environment can be activated. This awareness is invaluable, as it sets the stage for further growth.
(This article is part of a Featured Member Series on Growth Matters Forum published on 16 Dec 2021 – https://www.growthmattersforum.com/blogs/how-msmes-can-drive-sales-acceleration-through-customer-centricity )
As a small business, sink or float are not your only options -Delna Avari
More than 90 percent of businesses in India’s MSME landscape are micro enterprises. In a self-perpetuating loop, lack of capital access discourages business transformation, and unwillingness to grow and scale restricts capital avenues. Businesses, therefore, are caught ina limbo between sinking or floating, always triggered by external events. Let’s look at how MSMEs can break this harmful pattern.
Much like humans, the life cycle of a business evolves in stages – infancy, adolescence, youth,and adulthood. Through constant nurturing and soothing growing pains that address different demands at each stage, companies should ideally graduate from being micro enterprises to small scale, medium and then exit the MSME sector to become large. The Growth Institute describes the four stages – start up, grow up, scale up and industry domination eloquently in this piece.
The decision to grow or scale from one stage to the other depends on the philosophy and the values defined by the leadership – some leaders envision their business as a legacy that has a lasting impact on the way our world functions. Others are content with being a tightly knit passion or family business that can satisfy the economic and creative needs of the founder and a handful of employees. Several enterprises fall in between these extremes.
What’s important to remember here is that no matter at which stage of development an enterprise is at, the question of whether to grow or scale will always arise. The inability or unwillingness to address the ‘what next’ is what leads many micro enterprises to plummet in the dreaded Valley of Death (when a startup is operational but yet to see profits) or remain dwarfs – after infancy, they grow in age but not in size or turnover.
Interestingly, the Economic Policy 2018-2019 addressed the issue succinctly when it pointed out that dwarfs – small firms employing less than a 100 people, form half of the manufacturing units in the country, but generate only 14.1% of the employment. The document laid out the need for a ‘recalibration’ as the grandfather-like aged policy and regulatory framework was inhibiting firms from breaking out of the small-scale mold.
In the Indian MSME context, growth is a mindset problem as it is a structural one. When we diagnose stunted or sick firms, we find that the causes are both environmental (structural challenges like access to finance, infrastructure, ease of doing business, availability of raw materials and other resources) and inherent (mindset). While resolving policy paralysis is dependent on political will, setting onward looking business goals is entirely the responsibility of the leader.
Why should a business plan for growth? Why can’t it just be content with floating in tune to the ebb and flow of market mechanisms? The COVID-19 pandemic is a classic example of how unprecedented environmental factors can strip a small scale, stagnant firm of its misplaced notion of stability. Carrying on with a ‘business as usual’ attitude without considering the finite nature of business operations will leave a company unprepared to absorb the shock of events such as these.
Then, is the question of market realities. When you get complacent with your position in themarket, it disincentivizes you to invest in innovation that can take your product or service to the next level. Even if you maintain dominance by buying market share, it will only be a matter of time before you are dethroned by a young, hot-blooded company that foresaw something you didn’t, despite your firm’s age, market presence and customer relationships.
At this juncture, it is critical to understand the difference between growth and scaling.People often interchange these terms, but there is a marked difference in what they mean.
Growth is an expansion strategy of a business that increases revenue, but with equivalent incremental rise in cost. Growth is a cost magnet, because you are dedicating additional or specialized resources to achieve those revenue figures, either by introducing customization in your offering to attract customers or hiring new people to manage a new client.
On the other hand, scaling refers to the exponential expansion of the topline (revenue) accompanied by a marginal increase in the cost. Scaling is possible when you are geared toward making profit – it is a structured commitment to design your business in a manner to achieve what economists call ‘economies of scale’, i.e., driving profits by creating commonalities.
In scaling, you actively remove customizations to produce or deliver mass products or services that enable you to shrink cost by negotiating for better raw material prices, seek cheaper labor or hire only specialized resources to execute specific functions that accelerate scaling.
The Valley of Death is not for startups alone – in fact, the entire business trajectory is made up of intervals of Valleys of Deaths, where you will plunge into, unless you decide to migrate to the next natural stage. Therefore constant evaluation is crucial. If you hit a roadblock, where you are unsure of the next step, you must seek an impartial counsel, where an expert can guide you to see the blind spots you may have missed.
It is also possible that you do not see any room for further growth, and scaling is not something you would want to pursue. Planning your exit strategy then becomes the logical conclusion to this phase of your entrepreneurial journey. When you sign off on a respectable note, it gives you the right foundation to explore other avenues of entrepreneurship. You should know when to hang up your boots and pass the baton to the next able player!
(This article is part of a Featured Member Series on Growth Matters Forum published on 3 Jan 2022 – https://www.growthmattersforum.com/blogs/choosing-growth-or-scaling-in-your-entrepreneurial-journey )
Last year October 2019, ignorant of the months to come by, I opted for a break to go to Amsterdam. After landing at Schipol airport, I took an Uber and left for my Airbnb near the Prinsengracht area. I checked-in, freshened up, put my phone on the charger and started looking at the Airbnb experiences around my stay in the city. I booked a music concert on a boat for the night and a pottery class the next day before heading out to the city on a bike rented from an app. And all this without uttering a single word while receiving various OTP’s for the services ensuring complete digital privacy.
Shared platforms are not new. They have always existed since humans started differing from their ancestors. Shared food for the tribe, shared care of new-borns, shared resources for protection and so on. What’s new is that now we are using a mediator to connect us to other individuals who are interested in sharing the resources. And that mediator is our Digital profile!
The three main pillars of a shared economy are affordability, accessibility and convenience. Each global digital update unlocks new horizons to boost these pillars which we have already witnessed in our lifetime at an unprecedented pace. The advent of sharing ecosystems in the digital age took off with the success of platforms like Uber and Airbnb. There is no doubt that we are benefiting from the sharing economy both as a consumer and a provider but are also exploring new radical ways to completely adapt to a highly secure digital profile. While shared mobility and shared living are the poster-girls, the world is quickly moving or rather has already moved towards other sectors like shared food, shared finances, shared healthcare and even shared jobs! Apps like Olio, help you to connect with your neighbours so that surplus food and other household items can be shared and not thrown away. Best part? Everything on Olio is available or free!
Technology and digital infrastructure have helped the digital economy get to where it is today and it will only move forward as we become more connected. Some scientists and philosophers have long since advocated the theory of a collective conscience or a social brain which evolves as more and more individuals are connected and this directly results in the social disruptive innovations we witness. Since the digital age, these disruptions have become far more frequent as more and more individual brains are logged on to power the social brain or the ‘super brain’. And the super brain is thus directly responsible for the collective service of connected individual brains. From the dawn of digital age when Sir Timothy John Berners Lee opened a gateway for the world, we are gradually moving towards a Phygital society. Each passing year redistributes the percentage of our life span spent on the physical and the digital.
The digital life is certainly more exciting and adventurous than real life today for most of us. Take a look at the photos we upload, the experiences we share and the filters we use. We rarely care about how we look in real life until and unless that look has to become a part of your virtual life. It’s not only about looks but events, behaviour, achievements and most of all Happiness as well. Our digital credentials are as important if not more than our actual real-life portfolios. We are judged, rated, valued, denied and provided basis our social credentials which are boosted and amplified by the social media. A recent addition to our digital vocabulary is ‘Snapchat Dysmorphia’, a phenomenon where hordes of teens are visiting plastic surgeons to make them look exactly how they look in their Snapchat selfies. While in the real world we are beginning to explore the boons of a shared economy, the digital world still values individualism and the importance of online reputation!
Humans always had a tough time with the word ‘Balance’. The cost of convenience and luxury is much more than the price we get for. With the kind of population and finite resources we have, it is paramount to ensure that the sharing economy gains a faster momentum to serve the maximum. But, we have to ensure that it happens in a way where we limit the digital proxies of our virtual selves to communicate with each other. It will be interesting to see in the coming years if we use this superpower to create windows of opportunity or a Black Mirror!
I have always spoken about cultivating the ability to detect signals while ignoring the noise. And yet, my own ability has been severely tested in this environment. After the initial euphoria of finding new hobbies and building new skills, there is an almost deathly silence. The fear is palpable and very real. All the more a need to acknowledge the reality but move beyond it now.
Many moons ago, I was sharing critical feedback with one of the top guys and what action was needed. Suddenly he said I cannot rescue you from this, my quizzical brow raise was followed by “I have always been my own knight in shining armour, I don’t need rescuing. Your company on the other hand, most definitely does.” The truth is we all need help and we should ask for it, I do it too (brow raise notwithstanding). But as my mother dearest says, God helps those who help themselves.
It is time to shift the dialogue, it is time to keep moving and not let the situation break your stride. Yes, I am humming the 80’s tune as I write this.