A young business is characterized as being a “venture” and entrepreneurial” in nature. To take a viable venture and make it a growing concern, the entrepreneur must employ effective management strategies. Without effective management, a young business venture cannot become a successful early stage company no matter how exceptional the entrepreneurial concept, how much funding in its coffers, how exceptional its products/ services or how great the market demand is for them. It takes effective Strategic Management for a company to become successful and grow. In this article I will provide some strategies to employ in order to increase your small business’s success, whether it is a fledgling venture or a growing young business. In my opinion, this is the foundation to successful Strategic Management and should be part of any small business operation, no matter its growth stage.
By not being completely focused on a defined market, market segments and market niches, a young venture opens the door for competitors to invade its market and take share. Competitive Edge can only be maintained if you understand the trends happening in your market on the customer level. What many young companies commonly mistake is the concept that a product and service is defined by the customer, not the Company. Product Development and Marketing should be customer-centric.
The function of a Marketing Plan is to perform in depth analysis of the market to determine what customers need and want. A venture may have an idea how to market its products and services but after performing in depth, customer level market analysis, it often finds different markets, different used and requirements then originally envisioned. A good Marketing Plan has a system to define and examine market segments and niches so an entrepreneur’s “assumptions” can be verified and, most importantly, challenged.
It is not unusual for a venture to determine that it needs changes to its products and services because its Market Analysis found its assumptions unsustainable or uncompetitive, as well as, identifying other market niches not originally planned for.
However, market focus does not stop there. In fact, it is just beginning because a venture must be continually analyzing market trends and be carefully listening to its customers, so it can anticipate changes in the market in time to adapt and keep its competitive edge. A new venture should spend a lot of time out in its market place, with its salespeople and customers, to understand future market trends. This is what good Market Planning and Strategic Marketing accomplishes.
Accurate Financial Forecasting
For a fast growing, young, small business, inadequate financial focus, analysis, planning and policies are a kiss of death. Many young companies focus primarily on Profits when they should be concerned with Cash Flow, Capital Management and Budget Control Systems. Without these three components, profit and loss projections are baseless as over time issues compound within these neglected areas, causing profits to ultimately decline.
— Cash Flow
Sustainable profits come from good Cash Flow Analysis, Cash Flow Budgeting and Forecasting, and Cash Flow Management. At any point in time a growing company should know 12 months in advance how much cash is required to sustain its Business Plan. This gives a growth company time to generate cash, as well as, raise the necessary capital to sustain growth and profits. A growing venture needs to generate contingency cash in its Cash Flow Budget, along with retaining consistent earnings over time and having credit facilities available to seize market opportunities as they present.
— Capital Management
The well known business guru, Peter Drucker, maintains a new venture outgrows its capital structure in every 40-50% sales increase, necessitating changes to its Capital and Finance Strategy. As a company projects its Cash Flow Budget forward 12 months, one of the important components of this process is determining how much cash the Company will have on hand at the end of the period, what finance facility is in place to make up the necessary deficit in cash needs and ask the question of whether a different capital facility is necessary to continue. A Company’s Financial Strategy is intractably linked to its Cash Flow Management and completely necessary to define in order to sustain growth from one period to the next.
— Control Systems
With effective Cash Flow Forecasting, Budgeting and Management in place, along with an established Capital Management Plan, a growing company needs excellent Control Systems in place to manage costs is an important element in Cash Flow Budgeting. This Control System is also a part of a Company’s Profit Analysis when “controlling” and examining certain expense areas, such as, payables, inventory, production, administration, service and distribution. Profit Analysis & Cash Flow Analysis should be linked, understanding the relationships between cash generation, profits and expenses.
As a Company grows, it is important the Control Systems grow with it, making changes as needed, just like with the needed changes in the Capital Strategy (as previously discussed). It is critical to prioritize essential Control areas to the particular business. Areas to consider and prioritize include Product Quality, Service, Receivables Management, Overhead, Inventory Planning, Production Costs, among others, depending on the type of business.
Control Mechanisms need to be forward-looking as you can’t control past expenses and profit zones. They can provide valuable clues but more important is focusing on Control features into the future. As you plan advance Cash Flows, Control Planning should piggy back.
— Market Planning & Strategic Planning
Accurate, realistic Financial Forecasting must come from good processes in Market Analysis, Marketing Strategies and Strategic Planning. An accurate Market Analysis with good realistic information on the market segments and niches paves the way toward successful, believable and realistic Financial Forecasts. Good market analysis produces an effective, forward-looking Marketing Strategy, which is implemented through a company’s Strategic Plan.
A Company’s Strategic Plan does many things:
1) Implement Controls
2) Link Marketing information to Financial Forecasts
3) Establish clear Competitive Edge
4) Analyzes Risks & Threats
5) Produces Budgets and Sales Forecasts
In other words, the Strategic Plan is the essential process to effectively produce solid and accurate Cash Flow and Sales Forecasts, including Controls, which result in successful Cash Flow Management and Profitability. The important point to understand, accurate Financial Forecasting, and all that it encompasses, is a relationship process and speaks to a Company’s Business Plan Development and Implementation Process, System and Structure.
Effective Management Structure & Resources
It is important to plan well in advance, what management needs to be in place as a company grows and succeeds. When the company is young and small, it can be managed by a couple people. However, as the company rapidly grows, it is very important to have a solid management team in place. Otherwise, all that growth can cause severe problems if not managed effectively.
As a Business Consultant, when I work with a small company in developing their Business Plan, I put a lot of emphasis on identifying management gaps and analyzing future staffing needs. In fact, there are two sections of the Business Plan format I recommend which emphasizes this key success factor: the Company and Management/ Operations sections. You may have great products and services, along with a well-defined market niche; however, without the right people in place to carry out the Company’s Strategic Plan, then sustained growth, expansion and profitability become impossible to obtain, as well as, maintain.
It is important to note that Management is a two-prong concern for young companies:
— Management Structure: A company needs a well designed and implemented structure in advance of high growth potential, so a company can properly manage its assets, products, quality assurance, customers, sales people, financial planning, market trends and all the other numerous variables which need attention for sustained growth and profitability. The Management Structure needs to include both Upper Level Management Planning, as well as, Mid-Level Management. It is vital there is clear Strategic Direction and Communication Top-Down and Bottom-Up throughout the organization in order to successfully grow and sustain an enterprise’s success.
— Management Resources: Having the right people in a company is the second prong in the Management equation. Recruiting and retaining the right experience and talent for a Company’s future growth plans and present sustainability is the single most important planning element for a company. Experience is absolutely vital when a young company is growing rapidly, by leaps and bounds, to ensure the success is not short-lived and to manage the growing assets of the company. Just as a growing company needs competent Management, it is Management’s responsibility to ensure the Company recruits skilled labor and has effective training programs in place.
I can’t stress enough, as a Business Consultant and Entrepreneur for more than 20 years, that the Management Equation or Factor for a Company needs to be developed and implemented through its Comprehensive Business Plan. Without the right people in Management, a company cannot effectively plan and implement Product Development, Quality Assurance and Competitive Analysis; Market Analysis, Research, Planning and Strategy; Strategic Planning and Sales Programs; and Financial Analysis, Modeling, Forecasting and Strategies. It is a cause and effect relationship, which can quickly implode (or explode) without proper leadership and management. This is why the first two sections of the Business Plan Format I recommend to clients are the sections on the Company and Management / Operations. With these two sections planned for and put in place, the subsequent planning and execution of the Market Analysis and Marketing Plan, Strategic & Sales Plan and the Financial Analysis, Forecasting and Strategy can be successfully implemented and subsequent profitability maintained.
The most important element for a young growing company to have in place is its Management Structure and Plan. Well in advance of certain growth milestones, it is important to have the right management team in place with the right mix of experience and skills- what we call Management Resources. Young Companies may face challenges in recruiting and retaining top management talent and key employees as initial cash flows in the early stages of growth may not support competitive salaries.
Where does the entrepreneur / founder fit in a growing company with an expanding management team? The original entrepreneur(s) and founder(s) must analyze where they best fit in a growing, changing company, and how they can best contribute. This is important to define and plan for in advance, just as Management Planning defines areas of responsibility. The entrepreneur must learn to delegate responsibilities to his Management Team and learn to be catalyst for the Company’s Strategic Plan. No more is the entrepreneur the Manager; rather, he is an executive, the CEO, responsible for the overall goals, objectives and growth of the enterprise, leaving the day to day management to his capable Management Team. It is important that the Company’s Strategic Plan has clear communication channels established between the CEO and top management, who in turn, ensure mid-level managers and their employees carry out the Company’s Strategic & Sales Plan. This does not mean the entrepreneur should be cut off from his people- just the opposite. The CEO should frequently spend time with employees at all levels, motivating, encouraging and praising them. Employees should know the CEO is genuinely concerned about their professional and personal happiness. Leave the managing to the managers, giving the CEO the important roles of overall Strategic Direction and Employee Satisfaction.