Why the new year is a prime time to set growth targets
You’ve probably heard the expression ‘failing to plan is planning to fail’.
It’s one of those compact, but slightly irritating, mantras that management consultants, business advisors and even wellmeaning best friends tend to pull out of the bag when making a point about the importance of good forward planning.
The irritation factor probably stems from over use. After all, it’s the fate of all such sound bites to be repeated so many times that no right-minded citizen can hear them without suppressing a heartfelt groan. But perhaps more annoying is the fact that the message summed up in those seven short words can hit uncomfortably close to home.
Most business owners recognise the merit in stepping back from the day-to-day grind of running a company to review progress and set clear objectives for the future. In the real world, however, it’s all too easy to get caught up in chasing debtors, sorting out a turf war between two top salesmen or visiting clients, while neglecting to plan strategically. The result is that decisions are made on the fly – often in response to unexpected developments in the market – and the company loses its longer-term sense of direction.
Of course, there are events that leave you very little option but to sit down around a table to hammer out a strategic plan. For instance, you wouldn’t set about acquiring another company without defining some clear strategic goals and pinning down staffi ng and funding requirements. But even if the outlook for the year ahead is ‘business as usual’, it’s worth allocating time to map out the strategies that will enable the business to grow.
Lance Batchelor, former Vodafone director who is now chief executive and founder of IT help company The PC Guys, puts it simply: “If you don’t take time out for strategic planning, you can easily miss the risks and the opportunities facing your business. Missing out on strategic planning is a sure way of creating a steady-state business.”
David Knapman, a partner at accountancy and business advisory fi rm Baker Tilly, is equally blunt. “You need to take time out to look at strategy and you need to do it every year,” he advises. “If you don’t, it’s like you’re always walking in fog.”
Starting the planning process
But forward planning can be a daunting undertaking – not least because it involves a long hard look at just about every aspect of the business. “It’s a matrix,” says Allysoun Stewart, a director of accountancy firm Grant Thornton’s Business advisory practice. “When companies are planning for expansion, they often start out by focusing on one element of the business, such as whether they have the right people in place. But it’s no good hiring people, if the processes are not there to support them or if you don’t have the right product or an appropriate funding structure. You need to move all these things together.”
So in practice, you have to look at the accounts, the market, your funding needs, production capabilities and staff – all in a fair degree of depth. And if you drill down into just one of these categories – say, the market – you’re faced with a small pandora’s box of questions. “You have to ask yourself, what does the market want? Is your pricing right? Is your branding right for the market? Have you done enough market research?” says Knapman.
But there has to be a starting point and this tends to be defined by the objectives of the business in question. For instance, as a director of a young company, Batchelor and his two co-directors spend at least eight hours a week on strategic planning. The process is underpinned by a long-term ambition. “I look five years down the line,” he says. “I decide where I want the company to be at that point and reverse-engineer from there.”
To fulfil a long-term ambition, you need to look at the stepping stones. For instance, taxi and courier company Addision Lee has been growing at 30% a year recently. As managing director Liam Griffin explains, the company’s goal is to continue expanding at this kind of pace over the next few years and this ambition informs the annual planning agenda. The starting point is to address the prerequisite for growth. “For a business like ours, the key to growth is hiring more drivers,” he says. “So we start by deciding how many drivers we are going to need next year. From there we look at how many vehicles, how many support staff and what kind of support systems.”
In contrast, collaborative marketing company TILT begins the planning process by assessing the market. It publishes a series of As Recommended consumer guides, covering areas such as motoring and personal finance. These are posted to homes, but because each guide contains information on a number of brands, the costs are split.
Growth has been rapid. The three-year-old company currently publishes around 36 million brochures a year compared with three million in its first 12 months of trading. However, founder Ben Allan says the company’s expansion plans are largely determined by what cotangential clients are saying. “We have to go out into the market place to establish the business needs,” he says. “In that way, we can come up with a product that suits their requirements.”
Once that has been done, TILT’s planning tends to focus on funding – or to be more precise, how does the company address the issue of publishing costs rising ahead of revenues? To date, this has been largely accomplished by extending the terms of credit with printers.
Market research inevitably leads to questions about the future direction of a company’s product lines. As Shai Vyakarnam, a founder of business planning consultancy Transitions and director of Cambridge University’s Centre for Entrepreneurial Learning, points out, businesses have a number of interlinked options when it comes to growing product sales. “You can sell more of the same to existing customers. You can sell the same products to a wider customer base. You can market new products to existing customers. Or you can sell new things to new people,” he says.
Whatever strategy you select will have implications for the rest of the group. Grow market share for your existing lines and you’re looking at hiring sales staff to get the message across. Diversify into new goods or services and staff spend – initially at least – is likely to be on product development people.
There are other ways to approach the planning process. Let’s assume you’ve covered off the opportunities for growing revenue, but still feel the potential is there to improve performance. One way to do this is to shift the forces away from turnover and onto other aspects of the business, such as more efficient processes. “One of the first things I do when I work with a business is to get them to focus on the magic of 1%,” says Vyakarnam. “If sales go up by a percentage point and costs go down by the same amount, the effect on the bottom line can be significant.”
Structuring your plan
Whatever the starting point, it’s important to imbue the planning process with some kind of structure or modus operandi. John Courtney, chairman of business advisor Strategy Consulting, says hanging the planning process on a simple framework helps to keep things focused. He cites the MOST system as a convenient model, with ‘M’ standing for ‘mission’, or where you want to take the company, and ‘O’ representing the shorter term ‘objectives’ that will help you deliver on the longer-term goal. So if the mission is to launch a new product, one of the objectives might be to raise extra research and development cash.
From there you move onto ‘S’ for ‘strategies’. If we stick with the funding issue here, you might evaluate a number of options, including bank lending, private equity (PE) investment or a fl otation on AIM. Finally, you decide on ‘T’ for ‘tactics’, such as approaching PE investors. It’s a model that can be applied across all aspects of the business.
A structured business plan can be put together using nothing more that a blank A4 sheet or a spreadsheet. But you might find it easier to acquire some dedicated planning software. This isn’t hard to come by – banks and business advisors have been known to give it away – and it can be an invaluable thinking aid. “The key benefit of business planning software is the exhaustiveness of it,” says Alan Gleeson, managing director of Palo Alto Software, publisher of the Business Plan Pro planning practice. “It guides you along the planning process, helping you work through all the things you need to think about in a methodical way.” And if you don’t happen to be a whizz with a spreadsheet, you don’t happen to be a whizz with a spreadsheet, I you don’t happen to be a whizz with a spreadsheet, planning software will enable you to create ‘what planning software will enable you to create ‘what I planning software will enable you to create ‘what if’ cashflow projections without having to build a if ‘cashflow projections without having to build a model from scratch on Excel. Of course, planning strategically is a waste of time
Of course, planning strategically is a waste of time without successful implementation. There are two without successful implementation. There are two things to consider here. First, any plan worth its salt things to consider here. First, any plan worth its salt I will produce action points. For instance, if weak sales will produce action points. For instance, if weak sales performance has been identifified as a problem, you I performance has been identified as a problem, you might instruct the marketing director to organise might instruct the marketing director to organise retraining and a recruitment drive.
This kind of actioning requires buy-in. This kind of actioning requires buy-in. Thornton’s Stewart points out, once objectives, strategies and targets have been agreed, “you have to I egies and targets have been agreed, “you have to cascade the plan down through the business”. That I cascade the plan down through the business”. That means explaining to staff what needs to be done, I means explaining to staff what needs to be done, assigning tasks to individuals, and getting them to I assigning tasks to individuals, and getting them to give you regular reports on progress.
Further down the line, you need to apply some metrics to evaluate whether the plan has had any impact on the business. Are sales targets being met? How much success is the business having in winning new clients? Has the client churn rate been cut? This is really down to keeping a close check on the management information you use to run the company Imanagement information you use to run the company management turnover, costs, cashflow, the sales pipeline, etc. Once targets have been set for specific performance indicators, you review progress against the plan. And if the projected figures don’t match with what you’re actually projected, then it’s time to think again.
Making the time to plan
So how often should you set aside time for strategic planning? Well there’s no right or wrong answer here. Some businesses conduct regular planning sessions- perhaps as many one a month – while others are content to plan sparingly, if at all.
But whatever the frequency, it is good practice to ring-fence the sessions. Some entrepreneurs like to put a bit of distance between themselves and the offifice, but at the very least, you should do your best to ensure that the minds of all concerned are focused on strategic issues. “You need to formalise your thinking time,” says Vyakarnam. “And the sessions need to be rules based.” By this, he means that non-strategic topics should be off limits to ensure the best use of time.
It’s probably a good idea to document the discussions and any decision made. “It doesn’t have to be a door step,” says David Knapman. “But some kind of formal document is quite useful.”
One of the questions you should ask yourself is whether you need external help. Certainly, if the planning process involves technical issues that can’t be addressed in- house – such as where and how to raise finance – then it’s worth investing in an expert advisor or a suitably qualified non-executive director.
Bringing in advisers
But even if you are simply reviewing the progress of the business and setting out broad plans for the future, a pair of third-party eyes can bring a huge amount to the planning process.
As a businesswoman turned business advisor at Grant Thornton, Stewart has seen both sides of the fence and believes outsiders can provide valuable insights. “As a commercial manager, I found it invaluable to have an external advisor challenging my thinking,” she says. “Very often entrepreneurs are limited by their own vision. An outsider can help you identify opportunities that you wouldn’t otherwise have thought of.”
Gill Dunsford, founder of below-the-line marketing company Impetus Communications, agrees that founders often benefit from external input. Her company achieved an annual turnover of £1m after three years of trading and it is targeting further growth through acquisitions and partnership. Dunsford makes no bones about hiring directors with experience of strategic planning – the latest being Richard Littleboy – to supplement her own skills. “He has helped me see that the growth potential of this company is unlimited,” she says.
Most of you will probably be hoping that your company’s performance in the year ahead will exceed that of the last 12 months. By setting aside time to plan properly, you will be more likely to achieve that aim.
Case study: Identifying future trends
Company: Venue Solutions
MD: Dominic Berger
Founded in 2002, Venue Solutions develops and delivers integrated systems for sports and entertainment venues. Its offerings range from software packages that offer up-to-the-second information on customer behaviour and purchasing patterns, through to lighting and sound systems. In addition, the company has recently acquired Your Day, a system that captures theme-park customers on video as they enjoy the rides. At the end of the day, the material is edited and sold to the departing theme park customers.
As a technology company, Venue Solutions retains its competitive edge by looking fi ve years or more into the future, assessing what technology will be capable of delivering half a decade from now and how it might be applied to the increasingly high tech venues market. ?Our planning is driven by technology, market trends and the demands of venues,? says managing director Dominic Berger. ?But in trying to identify emerging trends, you can arrive at them too early, before the market is ready.?
However, the company?s partnership with Sony gives it an advantage as it can draw on the electronics giant?s technical insights. With technology and expected developments in the market as the starting point, regular meetings between the two companies provide Venue Solutions with long-term plans and projections, which in turn inform funding and staffi ng decisions. Meanwhile, corporate strategy sessions focus on shorter-term goals.