Recently, I began teaser introductions to the following five
topics. I believe that each topic
is a key issue for growing your company from 15 to 50 and then to 150 people or
more. So, here is my take on that
Holy Grail, on what companies and my clients need to focus:
Know Thy Self
Look at Your People
Culture
Processes/Systems
Business Model
Today we will focus on #5, Business Model. When asked, almost everyone says they have a business
model. The question should be,
does your business model work?
At 15 employees, most companies take any customer and are
delighted with them all. What most
often happens is that many businesses at this level, essentially focus on
materials, direct labor and determine profit.
At this stage most companies business models don’t take in
to consideration all of the cost factors that have to be included in operating
their company. This recognition
failure means that they become resigned to staying at this level. The two most overlooked cost factors
seem to be administrative and Top Management (owner may be taking a salary or
may not; the owner may be doing what will become two or three full time
positions).
The personal costs are failing to pay the owner as an
employee of the company. Often,
the owner is both General Manager and Sales force. If the owner is not separating out their roles and the value
brought in to the company from the ownership value, then it becomes very
difficult to afford hiring the right people as the need arises and the owner
let’s go of some of their roles.
The administrative costs are especially front and center
when a business begins to come up against competitors. Pricing in small companies almost never
takes in to account the costs of having people who don’t directly support the
sales and production part of the business. Initially, this gives the small company an advantage over
larger competitors. As the Company
grows and G&A increases in both real dollars and possibly in percentage of
G&A to the rest of the company, it will continue to be important to
manage/control expenses and it will become more important to understand how to
include G&A as a part of your business model. .
As companies grow towards 50 employees one of the big learns
is when a company analyzes its customers and find that some make them lots of
money and others don’t. This is
often the beginning of a shift/change in the business model because quite often
the early customers (who are loyal and love the company) are not what the
company needs in order to further grow and develop. This quite often means that the tough decision to move on
from (get rid of) these customers has to take place. Also, at about 30 employees on the way to 50, it is often
the time that a company has to move to more experienced/skilled managers. What often happens is the existing key
employees dig in their heels around letting go of old/core customers.
On the way to 150 employees, the business model again needs
to morph. The complexity of the
business requires further analysis of who is a target customer, how we
profitably address their needs, are we aligned to service that kind of customer
and how do we close the gaps as we begin to compete with more sophisticated
larger companies?
At both the 50 and 150 employee stage, one of the largest issues
is ROI (Return On Investment).
Companies find that they must re-invest in people and equipment with
significant cost tags. Much of the
time, this is when a company that has been profitable, become
unprofitable. Anticipating these
growth needs and keeping an eye out toward what the needs will be and when are
critical factors in success at these stages.
At what stage are you?
What is your business model and at what point do you think it may not
work anymore?
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