By John Rosling, UK CEO, Shirlaws Business Coaching
The big question we're being asked right now is "How do you create growth in a flat market?"
The answer is that you need to release cash in your business, and to do that you go back to basics with a strong platform that's prepared for future economic growth.
This means having:
- the right number of people
- doing the right jobs
- with the right level of skills.
#1 The right number of people
Having the right number of people is a concept we call ‘capacity planning' - calculating the exact number of people you need in each business team to maximise your profit level.
Most businesses tend to grow by simply adding a few more people during busy times. They add one, add one and add one more. Eventually the senior team realises the business used to make more money when it was smaller.
The right staffing levels are profitable
Teams can make a good profit at certain staffing levels. Then they need to add more team infrastructure, which means more people. These are typically back office jobs. It's only once they're all in place that the business can recruit more people into sales roles to create more growth.
Over time, businesses will grow, plateau during platform building phases and then move into a growth phase once more. Profit levels will remain low in a platform phase while the business is investing in people to create future growth.
In Shirlaws for example, we know that four people in a team will make money. With seven people, we lose money. With 12 people, we make money again and with 17 people in the team we lose money and so it goes on.
In a big economic dip, many businesses start to lay off staff and reduce team sizes. At the same time they'll be focusing on cash flow across the recession rather than on the strategic issue of having the right number of people to create profit.
Case study: A law firm had 174 staff and planned to grow to 191 by the year end. By calculating their capacity numbers and profit ratios, we showed them that 191 staff would make less money than 174. If they really wanted to make more money with more people, they'd need to increase to 214 staff. The critical number for them was first building from 174 people to 182 and then increasing again to 214. 191 was definitely the wrong number.
Many businesses don't calculate these numbers - some may have simply forgotten during this economic flat phase. Others may not realise that such exact calculations are even possible and rely on the finger in the air method. They'll typically say, ‘We're getting busy so we'll get someone else on.' The business increases from nine to 10, to 11 then 12. Once it reaches 17, managers find they're not making any money. ‘We used to make more money when there were only four of us!'
Recommendation: Go back to basics and get those capacity numbers calculated so you can plan your capacity ratios accurately.
Shirlaws business coaching are a global coaching firm, headquartered in London with clients in 37 countries. UK CEO John Rosling has written a book for business owners and CEOs called More money, More time, Less Stress, which is available for free download through Keystone Law.
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