31/07/2014

By John Rosling


A business is a journey. And it is a journey you do not undertake alone. Building a business involves a complex and evolving set of relationships, hopes, beliefs, joys and disappointments, moments of euphoria and despair; in a word ‘energy’.

By analysing thousands of businesses globally, international business performance company Shirlaws determined that this energy follows a clear and predictable pattern and could therefore determine where any business is in its lifecycle and predict what is coming next. This insight crated the highly regarded ‘Stages’ framework. It is a predictive model based purely on the feelings and energy the leadership team articulates.

For a recent book I wanted to explore what really builds highly successful, genuinely wealth-generative private businesses. I interviewed, in real depth, a number of highly successful entrepreneurs. In doing so, I learnt the real truth behind business success. I also learnt how well this simple ‘Stages’ model determines where a business is - and how accurately it predicts what is coming up next.

When you think about it, it’s not surprising that how you feel tells you where you are in a cycle – the human experience is remarkably consistent – or predict where you go next. Ask yourself how you make decisions and the answer is almost always ‘on gut feel’. Sir Richard Branson; “I rely far more on gut instinct than researching huge amounts of statistics”. If that is the case, then how you feel will immediately and dramatically impact on the decisions you make and the confidence and speed with which you make and stick to them.

Rather obviously, the stuff you need to do as a CEO of a £1m business is different from the stuff you need to do in a £10m business. And what Shirlaws Stages model demonstrates is the sequence of strategic initiatives to get you from one to the other over time.

Most powerfully, for me, the model charts the point that any seasoned business owner (and most parents!) will recognize with horrible familiarity. The stage where everything seems to go wrong; where you feel like you lose control; and where your fun and exciting business becomes a complicated and ungrateful nightmare of boredom, stress and frustration. This is the point where we all get disillusioned and frequently sell out or move on (as business owners not usually as parents).

Yet the real joy is actually on the other side of this. That is where the real wealth and freedom lies. That is where the business has matured and become wholly independent of you.

My conversations with entrepreneurs who have reached that nirvana clearly demonstrate that there are a small number of fundamental skills required. These skills can be simplified as:

1. Product. Your business needs a clear and distinct set of products or services and, critically, the internal systems and culture to be able to innovate on an on-going basis in order to adapt and achieve a sustainable business. The business also needs to understand how to make products distinct from your competition because they are positioned with a unique brand architecture that makes them different, relevant and creates cut through in your marketplace.

2. Channels. You need to develop and fully exploit your channels to market to provide a consistent and scalable flow of clients and revenue. Very often growth tends to slow or stall prior to/during the pain period I mentioned above. Consequently, the business needs to develop new, and probably multiple, routes to market.

3. Functionality. A functional internal structure ensures the right people are doing the right jobs at the right times. This is most critical at this stage because enough capacity has to be created in the senior team to spend in strategy activity to make sure the right choices are made and assets are built to access advanced growth.

4. Capability. As the business identifies new revenue strategies (products and channels) it will need to build new capability. Together with functionality, this is the core building block of your management system to ensure the business is able to reinvent itself successfully. Often it is critical to ‘fix’ the management systems before the business is able to invest productively in revenue and asset systems.

5. Asset Systems. Finally, you must have understood and defined all the key asset drivers in your business - the assets that impact the equity value of the business. Then you can start to develop and build these so that the assets are driving new business opportunities.

Fully implementing these five skills is the key that unlocks a transition from running a good ‘P&L-based’ SME to owning a great portfolio of business assets that are constantly developing new opportunities and new markets. And that is the source of real and sustainable wealth and freedom.