Decision making

GROWTH firms must do their job and continue to build their business in these turbulent times. Following are my thoughts for the leaders of these firms. Decisions equal success Decisions equal success – and there are four decisions, in growing your business, that you must get right or risk leaving significant revenues, profits, and time on the table. These four decisions are in the areas of people, strategy, execution, and cash. Even though most growth firms face continual challenges in all four areas, at any one time the challenges in one of these areas overshadows the rest. Therefore, your first decision to start 2009 is to choose which one of the four to focus on next. During the last half of 2008, we surveyed 1,300 executives of growth firms across five major regions of the world to see which one of the four decisions they most needed to focus on next. What we found were some patterns aligned with the opportunities and challenges of the region, which I’ll share towards the end of this column. But first, let me provide some guidance on the four decisions. People decisions In general, you know you have people challenges when you’re not enjoying running your company. You either have a partner issue, a customer with too large a piece of your business, a supplier delaying your success, a key employee or two who are disrupting the rest of the organisation’s effectiveness, or challenges at home. Or you might simply lack enough employees to serve your customers, though I caution executives to avoid tossing employees at problems. Until you settle these relationship issues, they’ll continue to consume a tremendous amount of emotional energy, making it difficult to focus on the other three main decisions. Focus on getting the right people doing the right things with clear accountabilities and metrics. Strategy decisions Strategy challenges are indicated by a slowing in top-line revenue growth. If revenue is not growing as quickly as you like, then it’s time to re-examine your strategy (what you’re selling to whom). It’s important to have a concise articulation of that strategy so you can get everyone aligned and on the same page without wasting sales or operational energies on activities not useful to the business. You know you’ve nailed it if revenues are growing as rapidly as you want. Execution decisions Execution challenges surface when your increasing revenues are not generating increasing profits. I’ve seen many firms triple their revenue, because they have capitalised on a differential advantage, only to see profitability drop because of the sloppiness of their execution. The other indication of poor execution is pure hours spent delivering your products or services. When execution is haphazard, the organisation has to rely on the heroics of their people putting in incredible hours to just keep the wheels from falling off the organisation. By simply tightening up your execution habits, you can dramatically improve gross margins and profitability while reducing the time it takes for everyone to complete their work. Cash decisions And the last challenge is cash. The first law of entrepreneurial gravity is “growth sucks cash”. We encourage companies to calculate their cash conversion cycle (CCC), which measures companywide how long it takes between when you spend a dollar (marketing, design, rent, wages, etc.) until you get that dollar back. In the early days of Dell, the CCC was running 63 days and caused the business to almost run out of cash. By focusing on decreasing this cycle, today the business is running close to minus 35 days. This means it generates more cash the faster it grows, which is why Dell has more than $9 billion in the bank, up from $6 billion when it got in trouble. We believe all growth firms can accomplish this or at least dramatically improve their CCC giving them sufficient internal cash to fuel growth. Your decision Now it’s time to choose your primary focus as you start 2009. In comparing North America with Australia, China, Dubai, and India what we found was a distinct difference in focus between developed and developing regions. Clearly the firms in the developed nations were most focused on the need to accelerate top-line growth and thus chose strategy almost two to one over people issues. In turn, the firms in the developing nations drastically need qualified people and management talent to keep up with the growth they’ve been experiencing. What was consistent among a third of the firms across all regions was a need to focus on execution. Many growth firms have a reasonably focused strategy and dedicated people. However, profitability isn’t where it needs to be and the people are working long hours to make up for the sloppy and nonexistent processes indicative of small to mid-market companies. Interestingly, cash, though not a dominate issue within any of the regions – although this might be a different story as of the publication of this column – it was chosen by twice as many firms in China over the rest of the regions (10 per cent versus 5 per cent of respondents).