By Matthew Cushen
For most start-ups, cash is precious, resources tight and there’s never enough time. Hence even more than for other businesses, it’s essential to make effective decisions about where to focus.
A priority missed, or an unnecessary distraction that eats up effort and resource, could mean the end of your business. Given the world around us changes, and our execution of a strategy is rarely faultless, priorities should change. It is essential to review and reflect on priorities at least every month and to have a flexible business strategy.
How often should you reassess your business strategy?
I like to see a business that has one page with priorities for the next month, three months and a year. This makes it easy to have a simple conversation:
These are the questions you can ask yourself, a business partner, an adviser or more formally with a board of directors.
Any business needs cash to operate, so generally funding and revenue generation are pre-requisites. Maybe with the odd (in both the senses of exceptional and bizarre) company where the value of a business is not based on revenue. For example, some of the tech businesses we have seen recently where perceived value is based on number of users.
I’m a retailer by trade and after some fun working with Virgin Retail, I really learnt the trade with Woolworths. Before I’d turned 30 and with Woolworths still a retail powerhouse with 800 high street stores, I was looking after homewares – a £250 million per annum category.
My team had to balance sales, profit, stock levels and the availability of products on the shelf (not just useful for sales but a key part of keeping customers happy & returning).
Balance is the key word; there are some tensions. It’s easy to promote to drive revenue, but as one of the wiser old lags told me ‘sales are for vanity, profits are for sanity’.
There is a tricky balance between tying up working capital in stock and sufficient stock to keep shelves looking attractive. But in a big business, the priorities tend not to change much month by month. I was always driving my team to perform better, but rarely differently.
However, for a small, fast growing business, the strategic choices can get more interesting.
Small business strategy – what are your most important outcomes?
The other day I was in a board meeting with a three-year old, fast growing business. We came to the conversation about priorities and the founders were talking a good game about the actions they could take to reduce their cost prices. They’d got to the point where their scale is giving them some choices of where and with whom to produce. You’d think increasing your gross margin would be a top priority (and in my old life I’d have jumped to it). But this wasn’t going to be the really big scale breakthrough and was going to take plenty of analysis, negotiation, operational effort to change and significant risk of something going wrong in the changeover.
With a turnover of around £70,000 a month, even a 3% increase in gross margin was only going to yield an additional couple of thousand pounds a month. We discussed the effort it would take. Effort that could be deployed on further growing distribution and supporting sales with good marketing. With a funding round coming up towards the end of this year, the focus is on making sure the growth is sufficiently compelling to attract larger investors and making sure the valuation grows sufficiently so the founders can keep hold of as much of their equity as possible.
So, we concluded that we would get more value from concentrating on driving revenue and avoiding unnecessary risks to service levels. We thought we could explain the logic of how the cost of goods sold will reduce, sufficiently for investors to believe and trust that it would happen after they invest.
This is not an unusual scenario for a growth business. ‘Normal’ logic and priorities can often not be the best option for increasing the value of a business and the probability of getting a funding round away. Hence it is essential to constantly interrogate yourself about what are the most important outcomes you are aiming for and therefore the choices you have on how to get there – your priorities.