Investing in Growth or Throwing Cash Away?

Posted on June 15, 2008

Having the cash to grow is usually the last prerequisite before implementation of the growth plan. But there are many other prerequisites that take longer than getting money. You need a proven, repeatable, scalable process that you’ve tested, that can produce predictable results.

I can’t remember getting a call from a CEO who had so much cash he could afford to waste it. More often, I have a client who is doing well and wants to parley the better than average cash flow into even more growth and profitability. What keeps us CEOs up at night is the worry that we’re taking cash flow that could be our retirement fund (or debt repayment) and wasting it on a growth initiative that will fail. Then we’ll enter our next down-cycle with less cash and a business that is already stagnant. And this worry is legitimate — the landscape is littered with the carcasses of businesses that planned for growth, spent on plan, but didn’t grow.

Having the cash to grow is usually the last prerequisite before implementation of the growth plan. But there are many other prerequisites that take longer than getting money. The one I’m going to focus on is having a proven, repeatable, scalable process that you’ve tested, that can produce predictable results.

I have a couple of clients that are amazing at this. Here is what they did: At the beginning, the founders usually closed all the sales. They developed a knack at it and had good results. In most cases, they then hired a few additional people like themselves who had some success at it too. But the perfect personality types that can master all the steps in the sales process can be hard to find and keep. So they broke the business development process down into steps, and hired a few people to do each phase and gave it a whirl.

They worked closely with those people and began to translate what the founder did into clear, actionable, measureable steps that an employee could follow. The process was adapted as needed since non-founders didn’t have the position authority and had to sell in a different way. New ideas were tried, measured, and added in when it improved the odds of success.

After a while, the first group began to do the job well. Of course, they were trained by the founder, who quickly became too busy to train everyone. The next step was that another set of people were brought on and were trained by the first group and with the use of written procedures that had recently been developed. When the second group of hires started producing value on schedule, then that was the first time the process was proven to be repeatable. In most cases, it took six to nine months to get to this point.

Assuming all went well, this was the point where scalability was tested. The firms brought in three recruits at once, who got the training from their peers (or their manager), read the manual, and tried their hand at the job. If they come up to speed on plan, and all else is going well, this is the point where they started to believe that they could speed up the process and hire six or twelve at a time and successfully increase the rate of growth for the business. Typically, a year has passed since the process started.

Many, many CEOs are NOT this patient. They assume that because they could go out in the field and produce revenues right away that everyone can. They assume that because it worked once, it is ready to scale up. But it’s not that easy. Most big crash and burns in growth mode happen because too many assumptions are made about the sales process. Finding an excellent, proven, repeatable process for growth is not easy, and most ideas about how to do that don’t work as well as they were supposed to. It’s just too complex a world to have a smart person figure it out and get it right without testing and time. If you try to scale prematurely, you’re scaling up waste and confusion, and you’ll blow a year doing it.

This is true in many areas of business development. Paid on-line ad spend must start slowly and please monitor your cost of conversion for each campaign until you learn enough to scale up with predictable, profitable results. Mailing campaigns and advertising: same thing. Franchises have a tendency to do one or two company owned locations well then jump to franchising. That’s a bad idea. A good franchisor will create their manual and launch a few remote stores with only the amount of support they plan to give franchisees. After they’ve done that a few times successfully, then, and only then, should they begin rolling out.

So if you’ve got money to spend on growth don’t throw it away. Hang on to it until you’ve proven you and your team know how to grow, then invest it wisely.

Takeaways:

• Carefully test your sales and marketing plan to scale up, until you’ve proven your model.
• Employees and executives usually can’t build a business in the same way as the founder.
• It may well take you a year to prove your process. So start long before you have the money to scale up.