We look forward to hosting you for the first CEO Roundtable with Aurik on 18 May.
One of the segments in this event is Troubleshooting. This is intended to directly address your burning issues, through the collective wisdom of the group, facilitated by business growth specialist, Pavlo Phitidis.
For this session, we’ll hone in on one of the most universal sources of stress, frustration & time and money spent (and often wasted) for business owners: People.
Please take 2 mins to share your Human Capital issues below so that we can get max value out of this discussion on 18th May.
In this article, first published in Elite Business, Pavlo Explores: Crafting a Strategic Growth Plan for Success in Today’s Economy.
The Ukraine invasion, global supply chains, chip wars, trade ‘wars’, COVID hangovers, access to skills and grumpiness have heavily impacted our economy. Add inflation to a grumpy mood, and you, not the state of the economy, will kill your business if you allow it.
Let’s prevent that!
Plan to plan, but no plan yet.
If you are stuck here, you will develop an irreversible aversion to risk and a mindset that only sees risk and reasons not to act. A year back, I met the owner of a second-generation family business in the construction sector. He enjoyed a reliable £13m annual revenue, up and down a few percent for the decade preceding covid. Since then he has wanted to regain his revenues and dividend flows. Still, it remains talk, unable to commit to building a growth plan. Perhaps a decade of comfort atrophied the muscles needed to act amid his competitors enjoying record growth over the last 3 years.
Should this be you, sell your business before its value erodes further or act now. Here are two options.
Act to sustain your value.
In February, I met the owners of a once beautiful £21m revenue business. In response to the strain of their overheads bearing down on them, both partners dove back into operational sales. Spinning rolodexes, bouncing between their digital platforms, CRM and debtors book helped find, win and hold customers. It’s an exhausting and chaotic strategy, and they are reclaiming their £21m.
It’s not sustainable, and it’s not enough.
To maintain their 2019 value, they need growth to meet the corrosive elements of business value. They include:
Inflation – at 10,1% in March, robust inflation is likely to overstay its unwelcome visit. As business owners, we should look to open our upside and protect the downside so let’s expect the promised 2% target to arrive only three years from now.
Currency – our currency’s value is driven by relative inflation and belief. Technically, the gap between our inflation rate and that of our peers drives the relative depreciation of our currency. This gap runs around 4% at the moment. It is then either depreciated or compounded by the belief and trust in Britain’s ability to grow and attract investment.
Industry Growth Rate – Industry growth rates are, at best relative and as speculative as any revenue forecast a business owner presents to investors. Many factors weigh in on this number. For the benefit of a simple calculation, let’s assume that your industry is expected to grow at 2%.
Adding up the numbers, to maintain the value of their company, they need to grow their £21m by 16,1%.
After running these numbers, the mad flurry of activity undertaken by the founders paused. They boldly and purposefully replaced it with the following plan.
Plan to scale, grow and dominate segments in your industry
While 16.1% feels like a considerable number, scaling, growing, and dominating a few segments in your industry needs more. At least add another 3-5% to boldly set your year-on-year growth at a minimum of 20-23%.
A tough economy rewards companies that respond on the front foot ahead of the changed lived reality that their customers and clients face.
Start by revisiting which customer segments you wish to dominate and reset your product-market fit to meet the new experiences demanded by these customers. Next, articulate these experiences into your commercial activities, processes and systems. Done with your team, not alone, helps create accountability and enables effective delegation.
The result will be a simple, relevant, crisp strategy defined against a well-defined market segment. It will be a commercial system honed to service that market, empowered and led by a purposeful team. It will generate organic growth and resuscitate the value and dividend stream you once enjoyed. Valuably, it will release your time to lead the 20-30% that this economy offers.
Yup, I know, I said 20%. However, done this way, 30% year-on-year growth is likely, so why not!
In today’s uncertain and evolving economy, scaling and dominating your industry require more than just a great product or service. It demands a combination of a resilient mindset and a resilient business model.
Resilience is the ability to persist and stay proactive despite challenging circumstances. By cultivating the right mindset and implementing a robust business model, entrepreneurs can navigate the ever-changing landscape and achieve long-term success.
The Power of a Resilient Mindset: A resilient mindset is the foundation for overcoming obstacles and staying ahead in the game. It is an attitude that governs your behaviour and shapes your response to adversity. Developing the following mindsets is crucial for sustainable growth:
Building a Resilient Business Model: A resilient business model is the blueprint for translating effort into economic success.
Conventional wisdom suggests focusing on product or service excellence, establishing functions, recruiting to enable those, and then growing by adding new products or markets.
The Asset of Value approach offers a more customer-centric perspective:
Combining personal resilience with a robust business model maximizes your efforts and drives economic success. By staying adaptable, continuously improving, and keeping your customers at the centre of your operations, you position yourself for exponential returns and long-term sustainability.
To listen to the full discussion from the show:
Building a brand is a process that takes time, effort, and a clear understanding of what you want your brand to represent. It all starts with your first engagement in the market, whether through a product or a person. This initial engagement ignites the first transaction, which provides you with valuable insights into the market and helps you learn about yourself in relation to what you are doing.
As you continue to engage with customers, pay attention to those who come back for more and whom you enjoy serving. Double down on them as an affinity for the customers that matter is as important as an affinity for the product. Take the time to understand the values of the customers you enjoy serving and what matters most to them beyond transactions. Building relationships and getting the voice of the customer can help you tailor your brand to meet their needs.
Your brand’s personality should match the values of the customers you enjoy serving. This alignment of values and value helps build trust, which is crucial in establishing a brand. Define the experience you want your customers, employees, suppliers, and the media to have in relation to this brand personality. Avoid the trap of trying to be everything to everyone, as this leads to a lack of focus and can dilute your brand.
Craft an experience that can be reliably, predictably, and consistently delivered without you. Unless you create a relatable and repeatable experience that can scale, you cannot grow, and you cannot build momentum behind the brand.
Recruit a team that transcends the functional activity you are trying to fill. Look for people who match the activities of the job that needs to be done, and then focus on values. An excellent team can help you scale your brand and provide the experience you want your customers to have. And then invest in your brand. If it’s a secret, and nobody knows about it, where is its value? Make sure people know about your brand by investing in marketing, advertising, and other promotional efforts.
Finally, it’s essential to live and lead your brand. You are the custodian of your brand, and it’s up to you to ensure that your team understands the values and personality that your brand represents. As you live your brand, you’ll attract the right customers, employees, and suppliers, which will help you continue to grow and build momentum behind your brand.
Building a brand is a journey, but by focusing on your customers, their values, and creating a consistent experience, you can build a brand that lasts. It’s up to you to invest in your brand, recruit the right team, and live and lead your brand to success..
For the radio show click here.
In this article, first published in Business Leader, Pavlo shares a simple tool – the onion – to think about your business, and identify your strategic focus.
Our inflationary, high-interest rate and low-growth economy will see companies with high overheads struggle to maintain the performance demanded by shareholders and executive bonus calculations.
As inflation and interest rates shrink local market value, access to established and new markets offer growth alternatives. Additionally, resetting and rebuilding a business model to increase productivity and performance will become a strategic imperative.
Expect mounting challenges accessing foreign markets. Brexit increased expenses and obstacles to trade with our closest £300 billion market. The array of ratified trade agreements might offer alternatives, such as the recently trumpeted CPTPP trade agreement which is worth a theoretical £37bn. Our challenges will be many. Our strengthening currency, significant differences in labour costs, and rapidly closing gaps in digitisation and technology competitiveness all weigh in. For products, add the cost of inputs and transport, set to increase further as we comply with our laudable commitments to Net Zero and other climate-friendly policies and regulations. All add to the cost of doing business, making our products less affordable than alternatives. For instance, imagine the cost of competing with a chocolate manufacturer in Chile or Malaysia, where our labour and transport costs are higher, before factoring in compliance with legislation and policy.
To overcome these challenges, we must increase productivity significantly. And since 2008, we have struggled to get this right! It can and will be done by those leaders intent on preserving their company value and remaining steadfast in growth despite all our economic ailments.
One way to get this right is to take a lesson from the simplest of vegetables: the onion.
An onion has three layers – the sweet inner; tangy middle; and outer protective skin. Applying this metaphor to your company offers up many opportunities.
Your inner layer is about understanding what is core and strategic to your survival, growth, and domination. You must own, deepen and protect these elements. Your middle layer includes everything non-core but strategic to the business. Outsource these elements to reliable partners on medium-term contracts. Your outer layer comprises everything non-core and non-strategic, where products or services are commoditised, and price wins the deal.
We recently used the onion to reset and rebuild a business intelligence company we work with. At its inner core, it must excel in analytics, interpretation, design, and presentation. It must own its software and skills in analysis and presentation. Its middle layer requires hardware, connectivity, and brand and marketing service providers. They are strategic but non-core to success. We established medium-term partnerships with providers whose services are their core strategic foci and intent. Their outer layer includes stationery, accommodation, refreshments, and other non-core, non-strategic products and services.
Today, they enjoy several benefits. A honed, simplified understanding of what matters most to grow and dominate their industry increased their productivity and market responsiveness. It has also allowed leadership to spend almost 70% of their time leading growth instead of managing operations. The company’s newfound growth has come increasingly from big and corporate clients. Out of necessity, these corporates have had to equally tighten their foci and shed costs by outsourcing previously insourced services such as business intelligence.
As business leaders, our company growth will increasingly come from excelling at how we position, win and lock in our services as middle-layer onion specialists.
I recently facilitated a business growth workshop for 89 established business CEOs, and the key question that arose was, “How do we get growth in a low-growth economy, riddled with power outages, held back by skills deficits, eroded by inflation, and impeded by gross negligence from the government?” Here are a few approaches to delivering growth across our client base today.
Growth begins with your mindset.
The foundation for growth in any business starts with your mindset. How you think affects how you engage and behave. There are two mindsets:
An operating mindset and a growth mindset. The operating mindset works hard to get growth but often hits a ceiling, building frustration that results in blame and cynicism. It does not yield growth!
A growth mindset works hard and smart. Acknowledging that most of your thinking and understanding is shadowed by not even knowing what you don’t know, or doubt, leads to a curious engagement with insights, perspectives, and new approaches. It helps create a restless and relentless intent to continuously improve, learn, and try new approaches. Across most of the developed world economies, a 64 year old business owner last experienced persistent inflation and interest rate increases at the age of 20. This invalidates much of what individuals experience in traversing the current inflationary and interest rate rises that govern these economies today. If the old dog won’t allow itself to be taught new tricks, it might well perish without a fresh perspective, new insights, and the courage to do things differently.
Growth needs a plan.
To achieve growth, you need a plan that is engineered through design and implementation. There are seven types of growth, each distinct from the other, whose timing and attention are vital. These include organic growth, financial growth, geographic growth, product/service line growth, customer segment growth, acquisition growth, and franchising growth.
Growth must be hunted.
Low growth means that you must grow by outplaying your competitors and eating their lunch. You must also grow by proactively responding to the changes in the status quo governing the problems you solve for your customers, how they behave and buy, seeking opportunities created by corporate outsourcing work to lighten their cost load and become more agile, and from accidental privatization resulting from government incompetence in service delivery.
Growth needs a number.
Tracking, measuring, and achieving growth requires a number to manage your path to success. A company valuation is not luck and prayer; it is primarily engineered, with luck playing a “timing role.” This number allows you to measure and manage your growth effectively.
Growth needs a team.
Your team is crucial to achieving growth, and it is important to ensure that everyone is aware of the growth plan. In over 10,000 surveyed businesses, 95% of employees were unaware of the growth plan, leaving the CEO to do all the heavy lifting. This can result in hitting a growth ceiling because you reach your capacity, and worse, you may fail the business because you burn out.
Growth is intentional and supported by a plan that is brought to life through your strategy, business design, team, and target. The economy’s condition is largely irrelevant when it comes to achieving growth. By adopting a growth mindset, creating a plan, hunting growth opportunities, measuring your progress, and building a strong team, you can unlock opportunities and overcome challenges to achieve sustainable growth in your business.
In this article, first published in Elite Business, Pavlo explores why a brilliant product or service is not enough to build a brilliant business.
Recently, a vociferous and highly talented founding team convinced me (and themselves) that they had built a globally competitive product. Yet, sales were stalling, and the grind needed to land a new client was bleeding their and their team’s passion dry. As exhausted as they were, so was I until the penny dropped: A great product does not build a great business.
Sometime during the late 19th century, a moment of inspiration came to Ralph Waldo Emerson, the American founding father, essayist, and poet. After witnessing a mouse escape a botched mousetrap, he wrote,”Build a better mousetrap, and the world will beat a path to your door”. In the late 19th century, he was probably right. There were relatively few products, and of those in the market, quality varied magnificently.
Emerson’s ghost visited me recently. It was the central thought in my brain as I listened to one of the founders give his take on why their product was exceptional, innovative, and globally competitive. Another founder shared her take on the market problem as one of education. “How do you convince customers of the value of our product when they don’t even know about us or understand how brilliant our product is?” she bemoaned.
It’s a common problem that many company owners contend with. Understanding why and how this problem occurs is essential to scale, grow and dominate niches within your industry. It’s vital to distinguish your brand and build your business into an asset that you can monetise through a premium exit in the future. And a great, world-class product is not enough to get this job done.
Every business has two fundamental parts to it. Both must be optimised, linked and integrated to create the complete experience any winning business offers. One without the other will fail your efforts repeatedly and eventually drain the passion and optimism that feed the drive and commitment that growth demands.
The first part is your product or service suite. And Emerson’s quip remains constant here. Every industry is overcrowded, and out of necessity, most of your competitors have built solid products and services. Trying to attain a product advantage by creating more features for your product or service won’t last or get you into a market on a sustainable basis. The primary job of your product is to solve a problem. A drill that cannot drill a hole will not build a world-class business!
Solving a problem needs tighter definitions in competitive markets. It requires a solid understanding of whose problem you are solving. For example, a drill used by an urban, single professional for hanging the odd picture needs a different proposition to a drill that aims to solve the problem encountered by a professional handyman.
This brings us to the business’s second half, which is essential to scale, grow and dominate. The product or service that solves a well-defined problem for a well-defined market segment must couple with a commercial system led by a motivated team to create relevant, well-defined customer experiences.
The question is, what creates a great experience? This, too, will differ depending on who you serve. Back to the drill. How a young, urban professional wants to learn about a drill, understand its capability, match that to the problem they want the drill to solve differs dramatically from the professional handyman. Additionally, how the engagement, buying, fulfilment and administration process works to deliver the product would differ between the two customers to create a complete and ideal experience.
Curating this experience requires a deep understanding of which customer segment you want to own. Then, narrow it further to understand precisely what experience they want to select your service above the many contenders. This creates the blueprint for your second half. It guides how you design, optimise and integrate your commercial functions into a repeatable, predictable experience. It is the key to accelerating your products and services to that market. This half of the whole business is arguably the hardest to build and the essence of a scalable service platform. Without it, scaling, growing and dominating a segment or three in any industry is a dream.
I recently reached out to Emerson’s spirit to update his coined phrase. “When everyone has a good mousetrap, you’d better beat the path to your customer’s door”. I’ll let you know his decision as soon as he responds. Meanwhile, the founders and their 48-strong team took it to heart. While it has taken some time, they are on a 17.6% annual revenue growth run rate, which seems unlikely to slow anytime soon!
In this article, first published in Business Leader, Pavlo looks to the white ant or termite to make a point about how inflation eats away at your business’s value.
The white ant, otherwise known as a termite, it’s a formidable little creature with an impressive set of jaws. They eat wood at a voracious rate and do so through the inside, not on top. Spotting them at work is only discovered when your foot lands on a floorboard and crashes through. It earned the term “white-anting”, analogous to how unforeseen forces unravel and disassemble efforts to create, build and sustain whatever it is you are doing.
White-anting aptly describes the corrosive impact of inflation on a business. Having last seen sustained inflation levels, in tandem with their ugly partner, rising interest rates, over 44 years ago, most of us would be far too young to remember the antidotes and counter strategies we can deploy across our business to sustain and, in fact, grow during such periods.
In this series titled ‘The inflation white ant‘, I’ll share six practical strategies to counter the corrosive effects of inflation on our companies and our state of mental well-being. I’ll draw the insights from companies I work with and share practical strategies and tactics to counter the value destruction inflation brings and the growth opportunities it opens.
It anchors you in the reality of the economy rather than a wait-and-see hopeful one. It also lets you see, feel and understand the changes inflation ushers into the economy, allowing for inspired and bold action.
The shock of our stubbornly high current inflation rate and the ongoing litany of dire economic news feeds uncertainty in decisions and actions. Yet, he who hesitates is lost, and the decision, no, the discipline of maintaining a growth mindset, yields inspired positive actions. It’s the difference between leading or following and stepping boldly into this economy on the front foot with the advantages that it brings.
Inflation erodes what you have at a compounded level. Hesitating to invest in growth today means the same investment will be more expensive tomorrow. Add to that the opportunity cost of hesitation or indecision.
I recently met a business owner considering investing in a new lathe. We ran the numbers, and the acquisition would collectively increase productivity by almost 7%. That increase lent itself to more competitive pricing, improved quality, and the opportunity to outbid competitors and grow market share. At that time, the media was filled with dire forecasts of Russia’s invasion of Ukraine, further driving energy and food costs. Doomsday Sayers weighed in heavily, accurately forecasting the inflationary prices we’d all have to bear. Hesitating, this business owner opted to wait for a more certain economic forecast.
March forward eight months, interest rates rose, and any possible debt funding dried up. The lathe’s price, including transport and commissioning, has increased by 15,8%.
They opted to invest in a new fleet of delivery trucks. The numbers showed us that the new fleet would increase productivity by an estimated 6% due to increased fuel efficiency, amongst other gains. It would also improve the company’s “green rating”, opening doors to EU-based clients that required such accreditations before accepting them as a new vendors. Nine months on, productivity improved by 4%, and they landed five new clients.
The differences between these two business owners are stark and lie in their mindsets. Both business owners live and breathe in the same economy. The growth mindset saw the future economy as an opportunity to act and grow in the face of the rising costs customers would face by getting ahead to improve productivity. As costs rose, he maintained pricing off the back of his reduced cost base. It earned him new clients, many at the cost of his competitors, that had to raise pricing. Literally ‘across the road’, the hesitation of the passive mindset lost the productivity gains that the investment would have ushered in time to meet the demand for improved pricing from customers under pressure.
A growth mindset is half what you need to thrive in an inflationary economy. The other half is a growth plan designed to capitalise on it.
When it comes to business growth, it’s important to shift our focus away from revenue and profit as mere indicators of success. Rather, revenue and profit should be seen as crucial triggers and indicators of change in a business’s development lifecycle. This is especially true if your goal is to build an asset, not just a job.
So, what are the criteria for building an asset? First and foremost, leadership plays a pivotal role in this regard. You need to understand what you want to achieve, why it matters, and how you can direct your resources to make it happen.
But how do you position growth within this framework? One way is to ask yourself the following questions: When should you pursue growth? Why is growth important to your business? What kind of business are you in? Let’s explore these questions in more detail.
Positioning Growth: When, Why, and What
Figuring out what business you’re in is essential for understanding how to grow. Take the example of Jack the Baker. Is he in the business of selling croissants or or providing a solution for fresh baked goods 356 days a year? Once you’ve determined the answer to this question, you can start to focus on the right kind of growth.
In this phase, revenue growth matters most, not profit
For businesses that are just starting out or looking to establish themselves, revenue growth should be the primary focus. It’s a crucial indicator of demand for your product or service and can help you build a solid foundation for profitability down the road.
Organic Growth: When, Why, and What
Organic growth is all about creating time to focus on growth without getting bogged down in daily operational activities. The goal is to achieve steady-state revenue growth that matches profit growth and tracks with it over time.
Accelerated Growth: When, Why, and What
Accelerated growth is all about dominating your positioning within a well-defined segment. This requires a strong understanding of your target market and a focus on profitability within that segment.
Next Level Growth: When, Why, and What?
Next level growth is all about de-risking your business by scaling profitability. It’s not just about profit quantum; it’s about ensuring that profitability is sustainable and that you’re not relying on one-time windfalls to achieve growth.
Capital Growth: When, Why, and What?
Capital growth is all about raising capital or looking to exit through a sale. It requires a focus on both profit volume (as a risk indicator) and profitability (as a growth indicator) to ensure that you’re building a strong, sustainable asset that’s attractive to investors.
When it comes to growth, it’s essential to understand the triggers and indicators that drive change in your business. Revenue and profit are crucial indicators of change, but they should be seen in the context of building a sustainable, scalable, and profitable asset. By positioning growth in this way, you can achieve long-term success and build a business that lasts.
As an entrepreneur, it’s easy to get caught up in the day-to-day operations of your business. After all, there are endless tasks that need to be done, from managing employees to coordinating with vendors to ensuring that customer orders are fulfilled on time. However, if you want your business to truly thrive and grow, it’s important to shift your focus from working IN your business to working ON your business.
What does it mean to work ON your business? Essentially, it means focusing your time and attention on the strategic initiatives and developments that will drive growth and success in the long run. This includes things like identifying new market opportunities, developing new products and services, and creating scalable systems and processes that can support growth.
On the other hand, working IN your business involves focusing on the day-to-day operations and activities that keep things running smoothly. This might include managing employees, handling customer inquiries, and ensuring that products are delivered on time and on budget.
Of course, both types of work are essential for a successful business. However, if you’re spending too much time working IN your business, you may find that you’re not able to devote enough time and energy to working ON your business. This can ultimately limit your ability to grow and scale your business over time.
So how do you make the shift from working IN your business to working ON your business? One approach is to conduct an ON vs IN audit, which involves creating a spreadsheet to track your time and attention across different business functions and activities.
For example, you might create columns for input functions, activities you perform, minimum time required per activity, frequency per month, and time allocation per month. This can help you to identify areas where you’re spending too much time on day-to-day operations and not enough time on strategic initiatives and growth-oriented activities.What Does It Mean to Work ON Your Business, Not IN It, and Why Does It Matter?
Ideally, you should aim to spend at least 70% of your time working ON your business and at most 30% of your time working IN your business. This balance can help ensure that you’re dedicating enough time and energy to growth-oriented activities, while still ensuring that your day-to-day operations are running smoothly.
To make the shift from working IN to working ON your business, you may also need to focus on simplifying, systematizing, and delegating your business operations. This might involve streamlining your processes, automating routine tasks, and delegating responsibilities to trusted team members.
Ultimately, the key to working ON your business is to build a scalable platform for growth, then focus on driving growth through strategic initiatives and developments. By taking the time to step back from day-to-day operations and focus on the big picture, you can position your business for long-term success and create a lasting legacy for yourself and your team.
Late payments are a menace to businesses, innovation, industries, the economy, and society as a whole.
Firstly, late payments have a significant impact on businesses, affecting their cash flow, which is akin to suffocating the business. It affects confidence both from your suppliers and your staff who will start looking around if you can’t pay them. This is compounded by increased costs of finance and expensive short-term loans, which can cause a ripple effect on the business and its stakeholders, even leading to bankruptcy in some cases.
Secondly, the economy as a whole is impacted by late payments. Unstable employment leads to mental health issues, businesses closing their doors has a huge ripple effect on their suppliers and the value chain they sat in. It can also affect trust and spoil relationships between businesses, leading to a bad culture of late payments.
Late payments can occur due to various reasons, such as cash flow management, complex payment processes, administrative errors, disputes over goods or services, intentional delay, lack of priority, inadequate payment systems, late payment culture, and anti-corruption legislation, and red tape.
There are many, many reasons so as business owners we need to look not at why these occur but what we can do to mitigate their impact on our businesses.
What can businesses do?
To avoid or manage late payments, businesses must know their industry and understand how value is created for their clients and customers so you know who they are, what can go worng and what their payment reputation is. Only offer services that you clearly understand and can deliver to prevent disputes on services redndered when it comes time to bill and be paid. Also, don’t be greedy – avoid deals that concentrate your risk.
Prevention is always better than cure but sometimes you might find yourself beholden to a delaying client and it’s important to build relationships across big corporations you are supplying to so that you are able to escalate when needed.
Be clear and concise with terms of service and administration and invoice accurately, per your clients requirements to get in front of the pyment queue. If payment is delayd, be practical and negotiate settlements, and with that lesson learnt, avoid repeating mistakes. If payment seems unlikly, be bold and fight for it if it is a big enough invoice. Nowadays, you can also remind customers of how late payments can affect their ESG rating.
What can government do?
The government also has a role to play in preventing late payments. There are various interventions globally, which fall into various categories, and which can be drawn on to build a framework to support SMEs
Pavlo discussed this in a recent Money Show podcast.
There is regulation but don’t rely on it. Do your homework, be savvy, don’t be greedy and always operate with enough self doubt to guard the downside when opening the upside of a big customer….
In today’s ever-changing business landscape, it can be challenging to make the right decisions for your company. Market dynamics are non-stop, and what worked last year is unlikely to work this year. So, what should lead your business decision making? Your product, your market, or your ideas? Let’s explore this question further by looking at a real-life example.
An I.O.T – telematics company makes devices to communicate changes in state such as water level, temperature, gas concentration, and sound/volume shifts, which are used in pipelines, cabling, and air. The product is offered as a service, with I.O.T advice and software to read and evaluate what’s being measured. However, this company is facing threats from competitors as barriers to entry fall, and opportunities in the market as client demand increases.
Product or market?
The founders of the company had different opinions on how to get ahead and stay ahead. Founder A wanted to add more features and capabilities to the suite of devices and software, in other words – product-led innovation. Meanwhile, Founder B wanted to introduce new products for different markets or use-cases, increasing the suite of devices and software, ie – market-led innovation.
However, neither approach was successful, both led to a series of investments in both product and market innovation, which confused employees, and drove poor performance. The founders’ ideas were based on their experience in product development and market engagement, with Founder A obsessing over competitor products and Founder B obsessing over competitor marketing and sales activity.
So, what’s needed to get it right? It’s essential to understand what business you are in by defining it in terms of clear customer segments, the problems you solve for each of them, and finally, the experience your customers want from you. This is the truest definition of customer-centricity, which is different from product or market-centricity.
This approach puts you in the forefront of the earliest changes in the everyday status of your customer. It’s the source of changes to how you engage (market-led) and how to change the product (product-led) decisions to get ahead and stay ahead. By focusing on your customer’s needs and preferences, you can make informed decisions that will keep your business relevant and competitive.
Pavlo discussed this in a recent Money Show podcast.
When making business decisions, it’s essential to focus on your customer and their needs, rather than solely on your product or the market. By adopting a customer-centric approach, you can make informed decisions that will keep your business ahead of the curve and set you up for success in the long run.
Running a business based on project revenue models can be a roller coaster ride. Money comes in only when a project lands, and business owners are sucked into high-risk projects that make it difficult to budget, plan, hold onto skills, stabilize suppliers, and scale. Every project feels like a game of roulette due to factors beyond your control, such as weather and the availability of resources.
To build an Asset of Value™ and escape the tyranny of project revenue models, some businesses have changed their approach. Let’s take a look at a few examples:
Construction Firm: This 2nd generation family construction business was hit hard by COVID-19 as big developments stalled. They responded by creating a designer-shack that was quick to erect, multi-functional, and aesthetically pleasing. It could be used for versatile spaces including a home gym, an office, a bar, a DIY workroom, garden shed or a kids’ playroom.
They found opportunities in multiple channels to market, such as website sales, retailers in hardware and building supplies, gym equipment distributors, realtors and estate agents, office furniture stores, architects, furniture stores selling bar-related furniture, liquor stores, and overseas markets for flat-pack, easy-to-erect versions of the product.
Software Developers: Two partners in a software development firm solved problems for big-brand corporate clients that the big-brand tech companies could not. They analysed all of their past projects and identified localsation trends, orienting their business around software solutions to manage complex SME value chains. .
Advertising Agency: Two partners in an advertising agency prided themselves on bespoke, thinking-outside-of-the-box solutions, but they struggled with a project-driven business model.
After positioning their service to zone in and focus on developing and producing brochures for vehicle manufacturers, their understanding as to how the brochures were used to promote, educate buyers and support the sales and marketing efforts of dealers allowed them to secure a consistent and reliable stream of projects. This flattened out their event based revenues into a steady stream of revenue, allowing them to hold onto talent, increase their return on marketing spend, build distinction and competence, and secure a capital buyout.
To get it right when changing your approach to building an Asset of Value™, you need to understand your purpose and intent, make a commitment to achieve that, create a path to exit, focus on a single goal, dedicate the first 90 minutes of every day and the last two hours of every Sunday to this goal. you may need to split responsibilities and fund one from the other, set milestones that shift time, attention, and resources, hire with the end in mind, and chase the transaction in the old business while building relationships in the new one.
Unfortunately, not every business gets it right. The construction firm sold two of their designer units and got sucked back into a new project, and nothing has changed. But for those who succeed, the rewards can be significant. The software firm has built a product that aligns with current trends and now generates approximately 85 million in annuity revenues across 350 clients. The advertising firm specialized in motor vehicle brochures and POS, created a repeatable, teachable process, built brand and reputation, and sold out in 2017 to a big agency for R23m.
In conclusion, by changing their approach and building an Asset of Value™, businesses can escape the tyranny of project revenue models.
However, it takes commitment, focus, and a willingness to take risks to make it happen.