What is growth?
In Part 2 we talked about the history of the corporation and how that started with trade, moved to productivity and now is moving to perspective. This is how these macro concepts translate into your world.
Trade, Productivity and Perspective
If you have £10 and I make a shirt for £10, and I sell it to you, that’s a simple exchange – trade. If I persuade you to buy 2 shirts for £10 each, my business has grown. I’m happy, but world GDP hasn’t changed much. If my competitor will sell 2 shirts for £18, I’m not happy, but she is. All she and I are doing is competing on price in the same marketplace. Price wars are a race to the bottom, especially when the customer has plenty of shirts already. But if I buy a machine that makes shirts twice as fast as I can by hand, I’ve made a productivity gain and GDP rises. My competitor may buy a similar machine so eroding my gain and driving me back into trading. But If my machine can produce a personalised shirt that fits perfectly, I’ve got a better interaction with my customer, and better perspective on him or her.
Get the balance right
It is easy to see how trading can be avoided with a productivity gain, but such gains are temporary until competitors catch up. Every business will exist to some extent in the three arenas of trading, productivity and perspective. They need to always strive to be leaving trading behind, recognising the brief productivity gain for what it is and move as much as they can into perspective.
How can we grow? And should we?
Usually, when talking to clients, we start by thinking of making the business better, not necessarily bigger. We’ve talked about this before. It tends to grow organically if you tidy up systems and processes. As that is all under your control, it’s a good place to start. And it makes any more growth easier to manage.
Next, we live in an age of customer capitalism, not shareholder capitalism any more. Customers come first. Ensure that your focus is on them. If you do this, you are unusual especially if you are competing with big businesses, who are still obsessed with their internal issues at the expense of customers. But even if you are competing with small businesses locally, you can make sure you stand out. Find me the car wash people who put my seat back in the same place and leave the radio station alone. In other words, Stop annoying your customers!
What about innovation?
Of course, an innovation can help you grow. But your chances of finding the next big thing and be able to exploit it are low. Too many resources needed and too much risk. Most so-called innovations are small improvements made much of in the marketing. Most are directed at replacing an item with an improved one. That’s still trade, which people are less keen on as we become more environmentally aware. In business, it feels like we are only running faster to stand still. And most improvements can be quickly copied by your competitors.
Most innovations are thought of as disruptive – it is a creative destruction – the Joseph Shumpeter model. But perhaps it would be helpful to think of new ideas as a non-disruptive creation.
This is about identifying a brand-new opportunity or redefining and solving an existing problem. The first may be beyond the reach of most of us to resource, but the second perhaps not. Another way is to think of the job to be done by the customer and what workarounds or irritations need to be fixed. Small businesses have the advantage of being closer to customers and their problems which means you are better able to address them. And that is to your advantage.
How the nature of OMBs lend itself to growth
Issues of scale
We discussed in Part 2 why OMBs are the future, but do their natural characteristics help with growth, given the obvious limitations of time and money? Both big and small business have constraints of time and money. It’s simply that small businesses have issues of scale in these areas. If you have 10 in your team and you need 10 hours to start a new project, that’s achievable. If you alone must find 10 hours out of your week, much more difficult. It’s the same with money. Scale is the key difference. Time constraints also impinge on owner’s trade-off between business and personal life, so that needs addressing to make sure that the owner’s work-life balance is what he or she wants.
Closer to your customer
OMBs are in general agile, flexible and resilient – able to respond quickly to changes in market conditions. That’s not the case for big businesses, or even businesses that try to look big. Here is an opportunity to nibble away at the big business customer base by giving a better, more personal service. Humans want increasingly to deal with humans. So, by all means improve your systems and mechanise them, except at the customer interface when you should be empowering your people to make sensible decisions based on the conversations they are having with the customers. Develop your H2H (Human to Human) skills. Big business tends to be bad at this; we all have stories to tell.
Ultimately the scarcest resource is time. If the owner can’t find any more, then growth stalls. Stealing back small bits of time can bring a positive snowball effect, and to do that you need broadly two things to happen. You need to systemise where you can, and you need to train and trust your people.
Train and trust
If you think no one else can do the job as well as you, whose fault is that? And how will you ever grow? Training is relatively easy – it’s mainly functional and soft skills. Trust less so. Trust usually means “are they honest”? But what it should mean is – are they competent (trained), reliable, by which we mean consistent, and do they have integrity (what we usually call honest) and your best interests at heart? Training your people frees up your time to spend with your customers or thinking about the business. It also allows them to train others when the business grows. Also, a trained team makes for a better capital value on sale.
How network effects can help you to grow
OMBs can overcome some other scale and resource issues with network effects. An example. The best-known Argentinian grape is Malbec. It’s grown in the foothills of the Andes. Wine has been grown in Argentina for over 500 years, but traditionally the micro vineyards fiercely competed with one another. That changed in the 1990s with some help from the government and universities. But crucially, the vineyards decided to cooperate to create a bigger market. It’s called co-opetition and for Argentina it has produced better wines known throughout the world. Even though Malbec is grown elsewhere, it’s now associated with Argentina. The pie hasn’t been shared out differently among the players, it’s grown bigger for everyone.
This collaboration comes from a network effect. It’s an example of Entrepreneurial Renaissance, and it’s a feature of our local digital and creative sector in Bournemouth.
Network effects occur when a player in the market sees an issue that prevents customers or suppliers getting the job done and can find a way to encourage a lot of people to adopt a new way because it makes life easier for them.
The Uber model replaced a despatch and back office service with technology. A traditional taxi is owner operated and has a back-office function with 2 people employed per taxi -the driver and the back-office person. The associated costs are passed to the customer. Uber put in technology to deal with the back office and despatch functions. That created a market of part-time drivers, without the need for a fixed back office cost. That led to more people taking taxis, so overall the market grew.
We are currently working with a business owner who wants to develop a network for a service that most of us need, which is currently carried out by a range of actors from national companies to one-man bands. Our client wants to take the back office and marketing functions away and allow the technician to do more of what they do best- their job – which is solving customer problems, not marketing, bookkeeping, or sourcing parts. His rule of thumb is that most one-man bands in his industry use 50% of their time in work that doesn’t add income. Sound familiar? Taking chunks of that away by automation and by outsourcing fully qualified, trained people to carry out those functions leaves the operator more time earning. That’s a network effect.
What functions are you doing that don’t contribute to serving customers? Could you outsource your back office and free up some time to devote to growth? Can you think of a job to be done by your customer that might be solved in a collaboration or through a network?
How to grow your business with few resources
To summarise all 3 blogs in this series – systemise whatever you can before you grow. Train and trust your team. Free up time for you and make your life, and any growth, easier. And remember to keep as much as you can away from trading towards individual customer perspective. For OMBs this is your future. Thank you for reading this and the very best of success to you.
We hope that you have found this set of blogs for Owner Managed Businesses useful. We know that being in business is hard, but we believe that you can influence your environment more than you think. If you would like more, there’s our short video on Growth and Control and our Strategy and Planning page. And there are free Energiser sessions available to explore this more. Just contact us on 01202 520010 or email