Most MDs trying to grow a business tend to focus only on revenue growth. This may seem like a sound plan, but this single focus puts a ceiling on business potential. We believe MDs need to grow capacity before they can grow their revenue base sustainably.

Growing capacity - filling your cup vs. a bigger cup    

Imagine your business as a partially filled cup - one growth path is to fill current business capacity. A business can ‘fill their cup' by removing inefficiencies, although this is never likely to reach a constant 100%.

So what about adding more people? Sometimes this can work. But it can also take the business into a loss if the areas of staff increase have low confidence predictions of profitability.

What's your current revenue?
What's your turnover?
What's the maximum revenue possible?

You might have an answer to the first and second question, but probably have little idea about the third. Firms often ask us to work with them to help analyse their numbers more accurately and increase their likelihood of success by increasing capacity in the right places.

Spend money to make money

Businesses rarely grow in a straight line, but in a combination of peaks, flat-line phases and profitability dips. If you knew when you would break even, and when you would make money, you could hold your nerve over the worrying flat-line phase to calmly arrive back in profit again.

We all know about business ups and downs, yet we've all seen straight line sales targets. This type of sales prediction has to be guesswork - and probably the entire business plan based on it is also a guess. Hardly surprising that these plans often fail to deliver when they lack capacity building to support growth.

Every business needs to invest before it can go into further growth. Shirlaws calls this the ‘platform phase', because it does not make huge profits - you may even make a small loss or simply break even. But this phase is essential for building the right infrastructure to support any uplift.

‘We made more when we were smaller'

Say you are profitable at 40 people. You recruit four more, which works well and releases time. So you recruit another six. Before you know it, your profit has gone backwards. But this is unexpected, so you decide these must be the wrong people and ask them to leave. Back at 44 you make profit again.

You conclude: ‘We used to make more money when we were smaller.' Every time you grow to a certain number of people, bang goes profitability. We help MDs understand the formula in advance so they can be more confident of breaking through the clouds to arrive in profit once more.

When senior leaders don't know their numbers - what is possible - they are understandably hesitant to employ growth strategies strategically. To do this, they must create some thinking time. This will help them determine how to increase business capacity by creating a stable growth platform on which to build even greater profit.

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Tim Bishop, 2 months ago

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