Imagine standing at the end of a runway and watching airplanes take off. Envision a pilot out for a weekend flight cruising over your head in a single engine propeller-driven aircraft. The pilot flies low over your head as the plane climbs slowly to control airspeed for a weekend “neighborhood” cruise. Then a Cessna Citation corporate jet comes down the runway with a roar. It comes off the runway with high speed, wheels up, and a high rate of climb as it propels for high altitude.
Arguably in flying, the takeoff is the most important maneuver. There are two pilots in the cockpit– one watching the instruments and one flying. Inside- and outside- facing, you could call it. All instruments are working in real-time, sending valuable information back to the pilots. What is different between these two planes? Speed and rate of ascent (or rate of climb) are the critical indicators of a plane’s flight trajectory. The engines and instruments have to work because no height is gained in the event of a technical failure. Or worse.
So too, as your business grows, “takeoff” is the most critical phase of a company’s growth, especially as adequate height is gained and the company is finally flying smoothly. Companies that grew from a million to a billion had compounding or exponential revenue growth: I have read that these companies are Blueprint Companies. In the Blueprint Companies that I researched, their inflection point was identified to be $50 million (USD) in revenue. And, significantly, their growth pattern had two distinct parts: the time from founding to $50 million was highly variable, while the path from $50 million to a billion had three distinct timeframes – 4, 6, and 12 years. Attaining this safe (and for companies, as my research showed, rarified) “air space’ is all about effective speed, the correct rate of ascent or revenue growth rate, and using all or at least 5 of the 7 Essentials.
Continuing with the airplane analogy, if you aspire to grow your company during these truly turbulent times, what are the essentials to grow your business successfully to the next level? You have to take off and keep going with adequate fuel (being cash flow positive), and your company must navigate through, above, and around storm clouds – making sensible, focused corrections in a frighteningly changing environment.
Why a billion in revenue? Of America’s 8,000 IPOs since 1980, only 5% achieved one billion in revenue. They account for half of the employment and two thirds of the market value created by all IPO companies! Companies such as Microsoft, Google, Staples, Amgen, Harley Davidson and many others are great places to work for and invest in. They grew from a million to a billion in revenue with compounding or exponential revenue growth. They utilized 7 Essentials (in fact, now 8) or management practices to achieve this consistent revenue growth. In contrast 25% of all US IPO companies went out of business since 1980. What did these management teams do that differentiated their odds of success from a million to a billion?
Whether you are a small or midsized business – at a million, $20 million, $100 million or $500 million in revenue, applying the 7 Essentials to achieve exponential growth is the secret to become a highly effective company. Of the companies that grew to a billion, I found that over 90% applied 5 or more of these 7 Essentials. Applying one will improve your growth prospects. Applying 5 or more will truly turbocharge your company’s growth – even in the face of our current economic uncertainty. And these Essentials are as applicable globally as they are in the U.S.
Taking another page from the training program for pilots, there are actions that must be followed whether weather conditions are excellent or stormy. So too, these managerial actions are time-tested by America’s highest growth companies during up and down market cycles. Utilize these actions to turbocharge your company’s growth prospects, even now. Below are proven action steps that you can align to each of the 7 Essentials. At first glance these actions may sound quite abstract, or simply extremely hard to do. With some nimbleness, ingenuity, and effective feedback mechanisms, they’re not!
Deliver “Way Better Value or Benefits” that truly differentiates your business and makes it relevant and valued in the eyes of the customer. Delivering Higher-Order Benefits is particularly important during “down” economic cycles. Customer’s needs change, or the way they articulate their needs changes. Therefore, it is important that you “speak the same language” – that you are excellent listeners and try, as best as possible, to realign your business goals with their service of product requirements. This essential is aligned to your innovation investment or R&D. Here are a suite of pragmatic actions to fortify your benefits:
- Redefine your customer’s benefits by interviewing your best customers to understand higher-order benefits as they define them. Listen and use their rationale and language to market to other customers. Focus on what I call “experience” benefits to increase the value you are offering. We found that benefits are grouped by product/service, location, and experience. In the same way that Starbucks declares itself the “third place” (after home and work), are you offering experience benefits that better integrates your business with your customer? One simple idea is to reduce the cost of doing business by preconceiving and improving the purchase process. To identify these benefits, interview your customers and scan other companies in your industry and in similar industries for innovative ideas about exactly how to do that.
- Broaden your product line through innovation investment or M&A to capture “greater share of wallet” with your customers, or to secure new customers in new markets.
- Innovate fast and test. Take a small slice of your innovation investment and quickly prototype product line extensions, enhancements or new products to test with customers. Get feedback early. Make second- and third-iteration improvements fast and cheap in order to find the next growth opportunity.
During down economic cycles, achieving consistent exponential revenue growth is a truly pressing concern of management teams. It’s important that panic not set in, and so there are three essentials to creating exponential revenue growth that you need to focus on in up and down economic conditions: target a growth market segment, utilize Marquee Customers to sell for you, and leverage Big Brother Alliances to break into new markets. The #1 concern for growth companies in down markets is customer demand. Here are a set of key actions that incorporate these three essentials and can improve customer demand – and simply help you find new customers:
- Form a Customer Advisory Council with your best customers. Companies that grow in down as well as up markets leverage customers to guide their company’s roadmap, define higher-order benefits, and sell to other customers! This Advisory Council is one of the most important actions you can take, particularly in down markets. These great customers of yours will be an invaluable extension to your management team, marketing team and salesforce. They are your biggest fans so make sure you take advantage of their innate enthusiasm.
- Move into adjacent market segments or geographies to expand your available market. For example, Under Armour, a leading sportswear company about to achieve a billion, diversified into sportswear for different sports, for women and is now introducing a new line of running shoes all leveraging the company’s core innovations.
- Fill a critical portfolio gap for Big Brother Alliance partners. Particularly during down markets, large companies cannot innovate to fill all portfolio gaps and place bets for new emerging market segments. Smaller companies, with a unique value proposition, can fill critical gaps. Utilize your Marquee Customers for an introduction! Alternatively, you can leverage alliances to expand globally. Set up partnerships with “in country” partners to expand your available market.
A company cannot achieve sustainable revenue growth without generating profits to reinvest in the company: This is an especially important Essential to remember in uncertain economic conditions. Here again, there are three Essentials that drive profit and cash flow performance: Become the Masters of Exponential Returns by becoming cash flow positive early, Utilize a Dynamic Duo of Inside – Outside Leadership to execute the internal and external essentials and Balance the Board of Directors with Essentials Experts.
- During perilous economic times, it is easy to assign an “across the board” cost cut in order to achieve or maintain positive cash flow. But leaders of exponential growth companies utilized a “systems” approach to problem solving. They think of their business as a system. (Trust me, not all company leaders do!) For example, leaders of exponential growth companies optimize their business during down market cycles. “Optimize” may mean streamlining processes, reducing headcount in selective areas, and investing in systems and IT infrastructure to optimize the business supply chain, customer management, or market intelligence system. Thinking of your business as a system is a key to determining the suite of actions to take.
- Formalize and focus on Inside–Outside Leadership. Do you have a dynamic duo leading your company? Your outside executive, typically the CEO or EVP Sales and Marketing, should be travelling over 150 days a year being innovative in forging alliance relationships and creating increased customer demand, the way Joe Scarlett, “Mr. Outside” of Tractor Supply, did as that company grew to a billion. This role and the other outside facing parts of the company are especially critical to creating customer demand during down market cycles. (It’s a truth for up market cycles too!)
- In our research, we found that Boards of Directors dominated with Investors and Management board members tended to be associated with companies that struggled in the long term. Instead, balance your Board with customers, alliance partners, and a CEO who has led a company to a billion (or a CEO who has led a growth company larger than yours). These members will balance the urgency to be profitable in the short term with longer-term interests. Is your Board balanced? If not, this is a great time to establish a Board that will better serve you as you navigate the especially tough times nearly all companies are currently facing.
After writing Blueprint to a Billion, I determined that there is an 8th Essential: Invest in Infrastructure. As companies grow from a million to a billion in revenue, the most successful leadership teams balanced profitability and cash flow with investing in infrastructure. Specifically, investments were made in people, processes, systems, assets and IT infrastructure. During tough economic times, the decisions to invest in human capital and general infrastructure are extremely important as they will affect your ability to optimize your business and respond quickly to oscillating market conditions. As I interviewed CEOs from up-and-coming Blueprint Companies, I found five key areas they typically invest in. These investments are aligned to their business strategy and growth phase:
- Ledger and Accounting: Move from spreadsheets to an “enterprise class” ledger system,
- Supply Chain Optimization: Take the opportunity to “optimize” your business, i.e., utilize software and services to streamline the supply of goods and services, and gain competitive advantage,
- Market Intelligence and Customer Relationship Management: Improve the front-end of your business, to better identify and manage customers,
- Real-time Metrics to Manage Demand and Working Capital: This is required for businesses with low visibility to customer demand and service metrics, narrow margins, , or high velocity assets, and
- Speed to Market: In order to accelerate innovation to market, an end-to-end logistics and new product introduction process is required.
Depending on your company’s needs to invest in various elements of infrastructure, you will need some combination of the 7 Essentials in order to make the right decision at the right time and to gain the required return on investment. Here’s a simple equation I use:
Management Techniques + Invest in Infrastructure = Sustainable Growth Company
It takes the 7 Essentials plus Investing in Infrastructure to achieve consistent exponential growth! Though this may sound self-evident, it is dismaying to see how many companies can improve their performance by trying to tackle management fundamentals aligned to executing the 7 Essentials and balancing cash flow with making longer-term investments in talent, processes, systems, and IT infrastructure.