Building a 100m valuation company: Part 4 – Growth
To recap, for the last few weeks, we’ve been talking about how to build a 100 million company.
There are five layers that a business owner needs to build to ensure that you can support your company valuation. How you act and direct your team across each layer changes over four stages of growth, from start-up to scale-up, ramp-up, and value-up.
The first layer is about positioning—it answers the question “what makes your business special in your customers’ experience”.
The second layer is the delivery system, which is all about designing processes, activities, and systems based on the experiences your customers want.
The third layer is about getting the right people to do the right thing at the right time and at the right price.
In this podcast of the Money Show, Pavlo Phitidis unpacks the fourth layer in “Building a R100m valuation company” [GROWTH]
The fourth layer is all about growth.
With your time now split to only 30% on operational and management activities because of the first 3 layers, you have time to focus and lead growth. There are several different types of growth you must generate to both lift revenues and deepen profit, and one without the other is of little value.
Growing revenue is about increasing your company’s revenue, while growing profit is about increasing your company’s profitability as a percentage of your revenue. In effect, you want to increase the “gap” between your revenue and your costs to increase profitability while also increasing the quantum of revenue to increase profit.
The first three layers see you with a company that serves well-defined customer segments whose ideal customer experience you’ve determined in the Positioning layer, which is then built out in the System of Delivery layer and brought to life in the Purposeful People layer.
Your job now is to accelerate your growth with your current services and offerings by leveraging these 3 layers to dominate in your segments. Doing so increases your market share in each of the segments you have chosen to dominate and increases your ease of finding, winning, and holding clients through referrals or word-of-mouth and brand familiarity. If you maintain your first 3 layers and don’t veer from the simplicity of the business model they offer, increased revenues will be serviced by an experienced and well-capacitated System of Delivery and team. Put differently, the same cost base of your business will generate increased revenues, widening the gap that drives your profitability. It will also mean that your team can drive this growth, releasing your time to focus on next-level growth.
Next Level Growth
This is growth that generates a significant impact on your profitability with little impact on your service or delivery costs. It’s also vital to diversify your company’s risk to create sustainability and increase your valuation multiples. Getting this right must again be done without disrupting your first 3 layers too much. Too much disruption or completely disassembling those layers will pull you directly back into your company’s engine room and the daily, weekly, or monthly grind of operational and administrative activities.
To get it right, use the time you have released to find new customers in different industries or sectors. By this, I mean customers who have the same problems that need solving and that your products and services can solve much like they do for your current customer segments. Then evaluate the similarity of the experiences that those customers want in order to support you. Their ideal experience must be as close as possible to the current experience you generate for your current customer segments. Again, this means that there is as little disruption to your first three layers as possible.
The result will be an entirely new seam and stream of revenue from the new customer segment in the new industry, served off the back of an experienced, capable, and moderately increased cost base. A significant jump in revenue, with much of it flowing down to your EBITDA or post-tax profits. Achieving this with little disruption to your first three layers means that your team can lead it and, again, release your time to focus on capital growth.
This is about locking in your future revenues and further deepening your profits. It is essential if you wish to secure a clean future exit at a premium valuation. Your focus here is on productivity, efficiency, and technology. Productivity is typically calculated as revenue per employee. Efficiency is calculated as time/activity, and technology is measured by automation—in your business or in your client’s business, which you have put in place.
Productivity gains are gotten through working with your team. Identifying process-driven activities and the ‘gaps’ between your business systems that compromise coordination (For example, lead generation not handing over effectively to lead conversion) is the low hanging fruit. Business systems need constant attention and development!
Efficiency comes into play when you identify with your team how you can enjoy more value for the same cost of an activity or engagement, or alternatively, the same value for a lower cost. Often, gains are found in your business systems that can be optimised and integrated more effectively.
Technology gains can see many productivity and efficiency gains automated inside your business. Outside your business, you see technology innovate and advance the capability of your service or product. For example, I.O.T, A.I., ML, additive printing, and many more technologies available invite significant gains in value to your customers and clients. Instead of running an in-person sales team, create a virtual showroom and offer sales calls digitally, weekly rather than six times a week in person.
Leading this aspect of your business evolves over time.
Starting up—growth is focused on transaction volume and velocity of clients until you identify how to position your company
Scaling up – growth must be generated organically as a result of this stage, freeing up your time to focus on the next stage.
Ramping up—accelerated growth is the order of the day.
Value optimization – next-level and capital growth should take up 70% of your time during this phase.
Getting growth right needs the first three layers in place. After that, it needs a vision, targets, and discipline – don’t get distracted!