5 growth strategies to turn a £1m turnover business into a £10m one
How to take a great small business to the next level. Talking to RBS’ John Fagan, five businesses reveal the strategies that accelerated growth
Pushing beyond the first big turnover threshold of £1m will, for most business owners, require sacrifice, commitment and risk.
To achieve revenues of beyond £10m will also require a surfeit of smart strategic thinking. We asked five business owners what strategies they used to accelerate growth and reach this milestone.
1. Differentiate or die
“Without differentiation, you are dead,” says Xenios Thrasyvoulou bluntly. The founder of PeoplePerHour.com, his company has grown by a factor of three in the last 24 months, based on revenues and user numbers, something he puts down to innovating and adding new product lines in order to stand out in a competitive market.
There are of course an infinite number of ways to differentiate, but Thrasyvoulou focuses on the fundamentals. “We think of the customer experience from start to end. Sometimes that means adding features / functionality, and other times it’s basic things like just delivering better customer service.”
Successful differentiation is an ongoing process, he warns. “It’s important to listen to customers… but equally it’s important to listen to the things they don’t tell you. It’s the company’s job to figure out how to innovate – customers won’t give it to you on a silver platter.”
The risks involved however are significant for the underprepared. Adding new product lines can be a stretch for all involved; as Thrasyvoulou says: “You try to do more with less, and that’s always risky for defocus and fatigue of the team.”
Dealing with customers’ antipathy to change can also cause problems. And businesses must also beware what Thrasyvoulou calls the “cannibalisation risk” – in which the new product kills an existing healthy revenue stream. But, says Thrasyvoulou, “if you don’t cannibalise yourself someone else will. It’s important to be fearless in that”.
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2. Align yourself with success
“In order to grow, you have to make sure you’re dealing with the right people,” says John Styring, founder of Igloo Books.
The company is one of the fastest growing publishers in the UK, having been established in 2003 and growing a turnover of £5m in 2008 to £23m in 2013.
Growth this rapid has required a careful focus on both customers and suppliers, says Styring. “From year two onwards we’ve looked at our customer base and, for example, made sure we’re dealing with blue-chip companies too, so we know they won’t leave us with lots of debt.”
“Equally, you have to know your suppliers are reliable – do your due diligence and make sure they won’t let you down.”
This requires working with people whose values align with yours, he says. “We understand our values – value, service, and quality. We’re relying on people who also deliver those values.”
This isn’t to say that the company has never been let down by customers going bust, for example, or suppliers failing to deliver. But while minimising the chances of this happening, successful fast-growth businesses also have plans in place to lessen the impact when it inevitably does happen.
“Fast growth can impact on your cashflow,” Styring warns, “and businesses need to have a plan for that.”
3. Splash the cash on marketing (but understand your customer!)
“My strategy from day one has always been: spend as much money on marketing to the consumer as you possibly can,” says Kevin Byrne, founder and CEO of Checkatrade.com.
It is a strategy that has seen his business grow from the early days, when he struggled to scrape together £1,000 for advertising, to a turnover today of nearly £10m.
National campaigns have included sponsoring the weather on the ITV’s Daybreak, but the company mainly focuses on local advertising, which can be adapted according to region.
The importance of knowing your customers was starkly, and expensively, illustrated when the company employed a marketing agency, which decided the company should be targeting a different demographic. Checkatrade duly spent around £60,000 in production fees and about £150-200,000 on TV and radio ads starring Sarah Beeney. The response was so poor the ads were pulled after six weeks.
“We learned that no one knows our business like we do. Outsourcing and listening to people that didn’t understand our brand was one of our biggest mistakes.”
With a website now attracting almost a million unique visitors a month, Byrne is confident in his marketing strategy. “Sometimes people get tempted to stop spending on marketing so they can see more profit, but the company plateaus, then starts going backwards, and then they can’t afford to start spending again. It’s a downward spiral.”
“I have no intention of taking my foot off the pedal on the marketing front.”
4. Get your product out there
Whether you are selling a product or service, giving as many people as possible the opportunity to try it is often the most effective catalyst.
Snacks-by-post pioneers Graze.com decided to focus heavily on free trials of their offering and have never looked back. Co-founder Edd Read explains: “The most successful strategic change we implemented was to up-weight the promotions which focused on driving trials among new customers.”
Clearly, there are risks involved in this strategy: giving your product away for free spells sacrificed revenue, so, as Read cautions, it’s important to monitor the success of such promotions and be agile enough to respond appropriately.
Giving people the opportunity to try their snack boxes has, however, paid off handsomely for Graze, increasing its brand recognition significantly, and playing a part in growing the turnover from around £2m in year two, to over £40m today, in year five.
“The vast majority of our customers still come to us through the free trial,” says Read. However, he cautions, while this strategy can be very effective in scaling a business rapidly, it is crucial to ensure that the growth is also sustainable.
5. Source external capital
External growth capital is one of the most obvious and potentially transformative catalysts for a fast-growth business.
Its impact has certainly been significant for DMACK Tyres. In 2010, founder Dick Cormack was able to work with Clifton Asset Management to secure £75,000 from his pension scheme, matched by £75,000 from his bank, to fund growth.
But by 2013 a much larger injection was needed in order to step up the production of their tyres. To this end the firm started seeking out equity partners, attracting the interest of six venture capital firms. From three firm offers, DMACK Tyres eventually secured £3.5m from VC capital firm Maven in exchange for 30% equity.
DMACK used the investment to pay for the manufacture of tyre moulds which means it can now produce hundreds of thousands more tyres each year. Turnover doubled as a result, and is now forecast to reach £9.2m. By 2016, Cormack is predicting revenues of £26m.
Equity investment doesn’t come without risk, as Cormack says: “We’ve got to deliver on the business plan now. Because at the end of the day that’s what you’re judged on. Things can change, as they inevitably do in business, but there is definitely an element of risk if you don’t achieve the goals you set.”
However, DMACK Tyres has so far over-delivered by anyone’s standards. “None of this was in the pipeline originally,” admits Cormack, who never dreamt his products would inspire the demand and acclaim that has underpinned his success. “But now my personal dream is to build the business into a global brand.”
Whichever growth strategy you decide to pursue, it’s worth considering how the bank can provide support to help you achieve your aims. The entrepreneurs here have opted for approaches that most banks will welcome, such as further innovation around a product or service set, amassing the talent and professionalism required to attract blue-chip customers, testing and measuring marketing or promotions campaigns until you have techniques that are proven to work but require funding, or even supplementing or balancing an equity investment with debt finance.
There’s not one single strategy that works for every business to achieve ambitious growth, but as these companies demonstrate carrying out research and, no doubt, seeking sensible advice, goes a long way when you’re looking to scale to the next level.
John Fagan is the head of RBS branch business, England & Wales and direct banking. His team work with businesses to build a bigger support network inside the bank and beyond with partners and fellow customers.