Why computers should play a key role in your growth strategy
Dan Sullivan, founder and president of the Strategic Coach programme, explains why today's entrepreneurs must embrace the power of computing and understand its potential as a catalyst for business growth
Undoubtedly one of the most important business innovations in history, the microchip is a technology that continues to evolve at an unprecedented pace. Consequently, I’m always surprised at how many owners of growing businesses, who are generally well aware of the silicon revolution, fail to appreciate how computer technology can, increasingly, be used to multiply the success of their companies.
This is not about the IT department calling the shots, but rather how entrepreneurs can set up their business to take advantage of one of the most singular driving forces in the modern economy.
Phil Catterall bought UK car insurance business ChoiceQuote, and grew it to 15 times its original size over 13 years by being on ‘the right side of the microchip’. He has since sold the business, but his entrepreneurial success story demonstrates how small and medium-sized businesses in the 21st century can become major players in their industries in a short period of time by using computer-based tools, systems and processes to increase productivity and profitability.
In 1965, Gordon Moore, credited as one of two inventors of the microchip, made a famous prediction, now called Moore’s Law. In simplified terms, he stated that the speed and power of the microchip doubles every two years, while the cost of the same amount of computing power is halved. For the past 45 years, millions of entrepreneurial businesses and hundreds of new industries have been created by taking advantage of the extraordinary productivity gains provided by the continual evolution of the microchip.
For a business, maximising the potential of computing means using Moore’s Law as a central organising principle and growth strategy. Yet very few business leaders, however, comprehend the full significance of what the microchip breakthrough offers and what Moore predicted.
ChoiceQuote is an outstanding practical example of Moore’s Law in action for two reasons. First, because of the extraordinary gains Catterall was able to achieve using computer processes and systems, and, second, because he, more than any other entrepreneur I have worked with, based the entire development and expansion of his company on a fundamental microtechnology strategy.
Catterall developed his insight during 12 years working as an IT programmer in technology companies in both the UK and the US. His insight was that there is no point attempting to start or grow an entrepreneurial company in any industry today if the fundamental approach is not based on continually maximising the use of IT. In other words, before you think about any other aspect of business development, start with the strategic objective to always capitalise on the productive advantages and breakthroughs of microchip-based technology.
Front and Back
All businesses can be broken down into two component parts: ‘front stage’ and ‘back stage’. The latter is where all of the administrative and support work is carried out behind closed doors. Meanwhile, front stage is where the marketing, sales and delivery of products and services takes place. Think of front stage as everything the customer sees, and back stage as the remainder of the operation. Taking the technology-led approach – or pursuing Catterall’s ‘IT First’ model – affects both business elements.
To demonstrate how effective Catterall’s approach is, it’s worth considering that when he purchased his company in 1995, the ratio of back stage (administrative) employees to front stage (marketing and sales) staff was 7:3. Some 12 years later, after growing the business to 15 times its original size, the ratio was reversed to 3:7. Over the same period the proportion of the number of employees to annual turnover multiplied by four, from one member per £100,000, to one per £400,000.
In my experience, the dramatic improvement in these two ratios is always a key indicator that a business is not only growing significantly with respect to turnover, but also in terms of profitability.
Catterall continually sought to use the breakthroughs in hardware and software, along with innovation in online technology, to automate as many business processes as possible. For example, allowing customers to enter all their quotation information and receive a response to their enquiry online. This included all data being automatically filed, rather than hiring numerous staff to man the phones, manually take information, enter data and send customers letters.
Many industries and growing businesses continue, even today, to fail to take advantage of this kind of technology. Those entrepreneurial companies that are on the right side of the microchip, however, review every single manual process that occurs in their business and ask: “Can this be done by IT?”
Let’s review the guidelines for adopting an IT First approach that will work for your business, looking at both the back and front stage organisation and activities:
1) Encourage and educate your staff to understand how their jobs and the success of the business is directly related to how well the organisation can capitalise on increasingly powerful computers, software and internet networks. 2) Focus on making any new technology as user-friendly as possible for staff. 3) Always use technology that is new enough to be effective and provide a competitive advantage, but well-tested enough to be reliable, easily serviced and continually scalable to accommodate rapid growth.
Successful front-stage activities use available technology to maximise the customer experience, often online. 1) Everything should have a great ‘look and feel’. Take Apple, for example, a great deal of its success is down to its focus on the user experience, how people feel when using its products. A lot of companies make technology that people find useful, but Apple makes technology that people love. 2) Any customer-facing technology must also be easy to use. For example, when a customer decides to buy, the process should be fast and simple. Again, Apple, as well as Amazon, are masters of this, and there’s no reason. entrepreneurs can’t learn from their approach. 3) Customers must feel the technology is secure. Any process involving personal and financial information must be slick, safe and reassuring.
Creating high value
Catterall sold ChoiceQuote in 2008 for an eight-figure sum, proving that his IT First model works in a highly commoditised industry. Now he’s developing this approach for any entrepreneurial business. Here’s what Catterall said when I asked him what the market potential was for his approach.
“Right now, 95% of existing small and medium-sized businesses in the UK and around the world are taking a haphazard and reactive approach to the use of technology in their businesses. They think it’s a secondary consideration when it should be the central, organising principle for all of their future growth plans. From the moment that they take IT First on board, they will begin to see productivity gains in the back stage of their companies, and increased turnover and profitability in the front stage.”
Since 1974, my own company, Strategic Coach, has coached more than 14,000 entrepreneurial business owners from 16 countries in 60 different industries. I can’t think of a single one of these companies that would not have benefited immensely from Catterall’s approach.
Returning to first principles, I believe the entire economy, and especially the entrepreneurial world, changed dramatically as a result of the invention of the microchip and the formulation of Moore’s Law. Adopting a model like Catterall’s is what it takes to succeed rather than be left behind by the constantly evolving opportunities that microtechnology offers. The good news for growing businesses is that Moore’s Law has made technology accessible to individuals and small firms in unprecedented ways. The challenge to entrepreneurs like you is to understand and prioritise its implementation, putting the productive use of technology at the core of your strategic objectives – or rather ensuring your business is on the right side of the microchip.