Strategy

12th December 2013

Step Changes Part 2 by Ian Kinnery

We looked at one of the step changes that growing businesses experience in their management structure in an earlier blog.

Although businesses seem to grow in a linear fashion, in fact their complexity moves in a logarithmic fashion so every new addition of people, products and processes will likely add to, rather than reduce, complexity.

Another area where making or not making the step change can prove fatal is in the area of Financial Mastery.

When a business is smaller financial mastery is important. It is always important to know your numbers, to understand how many widgets we need to sell to break even, to understand, at our current conversion rate, how many opportunities we need to generate to sell the widgets that we need to sell to break even.

It is important to know where the cash is and where it will be in the future. As we emerge from a recession this will become ever more critical.

In a smaller business a 10% inaccuracy may not be fatal. 10% of £10 000 is a lot of money but 10% of £10 million is a much bigger number.

So we come to a second step change. As businesses grow it becomes even more important to be able to tell which products yield the most profit, which departments create the best return, which investments are the best use of our cash, which channel optimises our cash flow and which people and departments are the most productive.

Growing businesses are famous for demanding a much more discerning strategy about the choices that we make and, at this level, choices need to be made, I would argue, based on the best numbers available rather than on gut feel, which may have been the strategy earlier in the business’s development.

So this step change is about the detail, accuracy, frequency and currency of the metrics in our business.

In order to grow, safely and optimally growing businesses need to understand the financial dynamics of the business and have accurate, timely and relevant information upon which they can make decisions.