Seven steps to succeed with speed

• Stephen Craft
• 4 July 2008

Photo credit: Getty Images

In last month’s column, I mentioned some recent research from the Commonwealth Bank and Investment Trends into the key features of fast-growing small businesses. This month, I thought I’d delve a little deeper and share some of the insights from that research. In particular, I’d like to focus on the seven key drivers of faster growth we identified in our survey. Together, they provide a compelling snapshot of a successful small business.

How did you compare?

We started by asking more than 700 small businesses around the country whether their profits had risen or fallen in the previous 12 months, and by how much. So 20% of businesess reported falling profits, while another 20% were holding steady. The largest group, 36% of the sample, saw their profits grow by between 1% and 20%. And a quarter enjoyed profit growth of 21% or more.

That means that if your profits didn’t grow in the year to November 2007, you were actually in the minority! (The same question might get very different results in 2008, if the most recent Business Expectations Survey from the Commonwealth Bank and the Australian Chamber of Commerce and Industry is anything to go by. Depressingly, that survey showed that an increasing number of Australian businesses expect costs to rise and profits to fall during the next year.)

But it’s the 25% of businesses at the far right of the graph that we’re interested in. Some recorded growth of more than 200% — which means they tripled their profits in the space of a year! So what made those businesses different?

The seven growth drivers

We asked the businesses in our sample to rate themselves on a range of performance measures. Here are the top seven features associated with rapid growth — plus some ideas for putting them to work in your own business: The fastest growing businesses weren’t necessarily the cheapest, the biggest or those with the highest turnover. Their owners weren’t necessarily the hardest working.

In fact, we found a small link between hours worked and profit growth. Each extra 10 hours per week the business owner worked was associated with an extra 3.5% profit growth, on average. So, on those figures, you’d have to work an extra 60 hours a week to boost your profits by 20%.

What these businesses had in common were outstanding products and services, combined with excellent sales and marketing and good management skills.

None of it is what one footy commentator memorably called “rocket surgery”. But it does take hard work and discipline to put into practise.

So let’s take a closer look at each of those drivers to see what they might mean for your business.

Growth driver 1: Carving a niche

It might seem obvious that the most successful businesses are the ones with the best products — until you think of all the businesses that don’t sell on quality.

By selling on quality, instead of price, range or something else, you can stand out from the pack and carve out your own competitive niche. Even better, you can target the most profitable customers and charge accordingly.

To see this idea in action, look no further than your local shopping centre. There you can find David Jones (selling on quality), Kmart (selling on price) and Myer (somewhere in the middle). And which has proven the most successful? David Jones, earning shareholders a return of 33% a year over the last five years.

Growth driver 2: Generating leads

Once you’ve carved out a niche, you can tailor your marketing to generate leads from your targeted customer group. The trick is to try a variety of marketing techniques, from direct mail to Google ads, and carefully track the effectiveness of each approach.

Often the simplest methods are the most effective — for example, creating a referral program and encouraging your satisfied customers to recommend you to their friends.

Growth driver 3: Converting leads

Having captured those leads, you need to convert them into sales. Again, the little things can make all the difference. Simon Harris, from business coaching firm ActionCOACH, tells the story of a rental car business he coached.

“When we started, the owner thought he had a conversion rate of around 60%,” he says. “But when we watched what was actually happening in the business, we discovered something interesting.

“Every fourth sales enquiry was answered by the mechanic, who wasn’t at all interested in getting new customers to come in and wreck his nice cars. As a result their real conversion rate was more like 16%.”

Simply by promoting the mechanic off the phones and giving the other staff some training in phone sales, the car rental business quadrupled its conversion rate, bringing it up to where the owner originally thought it was. That’s a massive 300% increase. Which left them with a new problem. They started running out of cars.

Growth driver 4: Tend what you have

Harris warns that too many business owners focus on attracting new customers while forgetting about those they already have.

“There’s no point generating leads if your customers are walking out the back door,” he says. “It’s like turning on the tap without putting in the plug.”

This means you need to get the basics of delivery and customer service right to keep earning repeat sales from your existing customers.

Growth driver 5: Don’t go broke!

Rapid growth can put your business under severe financial strain, with expenses continually increasing as you ramp up to fulfil new business.

Unless you run a strictly cash business, a cash flow gap can easily develop while you’re waiting to get paid for those sales. That’s why you need to stay on top of accounts receivable, and always make that you have a cash reserve in place.

Growth driver 6: Put systems in place

Efficient systems not only help you manage cash flow, they also boost your profit margins by keeping costs down. And they’re essential to maintaining consistent and high-quality delivery.

Growth driver 7: Get your pricing right

Finally, there is pricing. Pricing only just sneaks into the top seven — and even then, it’s not cost, but value that is the most important factor.

The trick here is to always make sure that your customers feel they’re getting better value for money, even when you’re charging a premium over your competitors.