Phil Reakes, a business coach with Energy PR’s Strategic Partner SGFE, explains why businesses fall into ‘black holes’ and how to avoid them!
Why Your Brand Will Help You ‘Jump’ The Black Hole
Did you know that business growth stalls at predictable points, regardless of size, sector, industry, or location?
At SGFE we call these points ‘black holes’ because companies can disappear into them for years.
Often, when a business falls into a black hole, it can be catastrophic. So, understanding these black holes, and what happens in between, helps management to ‘jump’ into larger growth beyond.
Probably the most important task for a company to make if it wants to ‘jump’ past a black hole is to re-brand. In essence a business must organise itself to look like the company it wants to be beyond the black hole.
Most black holes are due to inadequate underlying organisational structure. There are other factors as well, such as neglecting infrastructure and services, such as training, accounting and legal, in parallel with the core growth of the company. Where do they occur?
The first black hole occurs at around £80k. It is at this point that the founder of a business faces the decision to recruit the first employee. This is often too daunting, and many decide to stick at this level.
The next black hole happens around the £750k mark. The business now has typically around seven employees, each reporting to the founder. It is at this point that the business will not progress without more formal reporting lines. This puts the founder into a quandary: ‘I need someone who can sell/manage staff/service clients just like me. But I don’t think anyone is quite good enough!’
At £17m the business is moving from being an enterprise to having to corporatise. It may need a board with a non-exec director, implement structural changes, develop corporate-styled systems including accounting practices, compliance, and governance.
There are two ways to jump a BLACK HOLE: TOP-DOWN (PLAN) or a BOTTOM-UP (BUILD).
Top-down strategies are built by going to the last revenue cycle before the next BLACK HOLE. This is the Brand cycle. Designing the business at this number and working back through sales, channel and product will allow a business to jump an entire Phase.
However, most businesses follow a bottom-up strategy. That is, they build from a Sales cycle through a Channel cycle, on to a Product cycle and finally, realising it is out of date, they realise their brand needs an update. The business essentially fixes each area as it goes along in a reactive manner. This is running the business on a day-to-day basis, and so is a Bottom-up, or lifestyle strategy.
Example: The Phase from the £750k Black Hole to the £17m Black Hole
At £1.5m revenue, regardless of industry, something happens to the CEO’s function, and it is usually Sales related. At this point the CEO must hand the sales function to someone else to release their time to continue to develop the business.
At £3m they will encounter a Channel problem; specifically a client services issue. This is because the founder holds the relationships with all the clients and no longer has the capacity to deal with them. So, the first ‘channel’ that needs to be in place is a sales or client services resource.
At £6m the problem is now Product, as margins have become tight. As they employ more people and add supporting infrastructure, margins decrease. The choice is to increase price or reduce costs, often a sticking point.
At £12m, the issue is Brand. Why? Because the last time they looked at their brand they were a small company. The brand is looking out of date and not aligned with being a £12m business. To go from £12m to £24m it is not possible with a brand that looks like £1m! Brand is always the most important aspect of the business if it is to jump the next black hole. In this case the business must now build a brand that makes it look like a 24m business and plot what the company will look like at that level as well. Positioning needs revisiting and an aligned brand developed. Then a culture audit will ensure the people know their role in living the brand.
As we have seen, it is important that management recognises when black holes occur to avoid falling into them and becoming stuck. The most important way to ‘jump’ past a black hole is to look at your brand. Whether top down or bottom-up Brand is the most important task facing a company wanting to ‘Jump’ the next black hole. In essence a business must organise itself to look like the company it wants to be beyond the black hole if it’s to avoid it.
For more information please visit the SGFE website or email Phil.email@example.com