IMAGINE a merchant in days gone by who was about to embark on a journey to a foreign land to trade. He would likely have noted down directions clearly, as well as any potential hurdles. And as he made his journey, he would have referred to his notes to make sure he was on track - and changed his plans accordingly if he found a more efficient route.
This same methodology is probably applied by many SME towkays and still works today. For example, if your destination is to get your company listed on a stock exchange one day, you will map out how you want to grow your business and avoid unnecessary risks. However, as your business or your headcount grows, a more systematic framework to chart the business's growth and communicate plans to various stakeholders and staff, will be needed.
The following is a simple framework that entrepreneurs can adopt to map out a growth strategy (See diagram on the right).
This model is set in a wheel to indicate that planning for growth is a continuous process that does not stop, and signifies the need for constant review and improvement on what was last set down. It aims to help you set SMART (Specific, Measurable, Achievable, Realistic and Timed) goals and key performance indicators (KPIs) to track your growth, so you are on top of your business while travelling towards your destination. It helps you clearly define your business and revenue models and analyse how to leverage on areas that generate better returns with lesser effort. Many entrepreneurs who adopt the framework find it helps them define their business and focus on the big picture while juggling with daily challenges.
To help you get started, we have applied the model to the three stages of growth of a business - referred to as start-up, growth and internationalisation phases - in the tables to demonstrate the issues you will need to consider at each phase.
The 7 elements in the planning framework
You will typically start by defining your business model, which will focus on your core competence, and which you will continuously review and strengthen by clarifying your value proposition (Business Modelling). Closely tied to the business model will be the revenue model, which aims to optimise profit and cash flow. In Revenue Modelling, you identify your current and potential revenue streams with their supporting cost structures, and quantify the impact on your profit and cash flow.
Having determined your business and revenue models, you will plan and manage your resources to produce your output. Under Capacity Management, you will determine the optimum capacity at which your business can operate based on its present facilities and infrastructure, and configure your capacity to generate the best returns.
Having the funds to sustain your operations and the people to run it are the natural next steps. Here, you will perform Funding and Management Structure reviews respectively. Review your funding structure, capital expenditure needs and working capital requirements. Leverage on financing options that best meet your business needs.
Having a team you can count on to ride the ups and downs with you is just as important. You will need to identify and bridge any management expertise gap to make sure you are able to efficiently execute your business plans. The eye on efficiency in a business cannot be over-emphasised. In Business Process Re-engineering, you review your operating procedures and processes to tighten systems and controls, in order to improve productivity, preventing leakage and enhancing service quality. Last but not the least, what you cannot measure, you cannot manage. You will need KPIs. This is literally keeping your finger on the pulse of your business.
The 3 phases of growth
A start-up is generally defined as a business that has completed product development and initial marketing.
A company in the growth phase is defined as a profitable business with a stable customer base. With rising sales, it requires more capital and resources.
Finally, when a firm seeks to internationalise its business, it already has a profit track record and has been successful in the local market. It is now looking at overseas expansion through joint ventures, mergers and acquisitions, and strategic alliance with overseas entrepreneurs. (See tables on how to apply the model to the three phases of growth.)
In a nutshell, how you build your business successfully depends very much on how you drive the business, and having a systematic framework is akin to having a compass to guide you towards the desired direction.
This article was first published in The Business Times on Jun 3, 2008
