Market Gap Investments

January10th

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So if there are three critical aspects to business success, and focus is important to achieving success should you focus on only one aspect or are each of them equally important?

It really does depend on where you and your business are right now as to what drives your activity and focus.

I can recall the times in a number of businesses that I have been involved in where everything seemed to run perfectly. The customers were happy and paid on time, new business was generated by referrals from satisfied existing customers, our market was buoyant even though the economy was reportedly slow, employees were enthusiastic, having fun and working very hard to meet customer expectations and help the business succeed, and we had money in the bank. All three aspects of the business were in perfect alignment; the business model delivered value, the finance model delivered cash and profit and the people management model was effective in developing people to work together.

And then stuff happened that made things fall out of alignment.

In one instance, a major client, who had grown to generate some 20% of our revenue, decided to change their payment terms from 30 days to 60 days, adversely affecting our cash flow and exposing us to significant financial risk.

While we had established some ground rules that no one customer should constitute more than 10% of revenue, our business model systems had not been robust enough to pick up that we had started to operate outside our guidelines. Our client was growing very quickly, and while they required extra product and service from us, they were also experiencing the cash flow pains that come from rapid growth, and had decided to pass some of that cash flow pain onto their suppliers.

At the same time, one of our staff members received an attractive offer to work with one of our major competitors. I believe that as an employer our obligation is to develop people for their next role, and while we were disappointed to see a valuable team member leave, as an employer we felt a sense of satisfaction that the way we developed team members was recognised by a major competitor.

So what issue got our focus?

  1. The easy fix – we introduced a more robust management metric into the business model to ensure a tighter control on sales – so we could work with clients to manage their growth without stressing our business model
  2. The routine fix Рwe negotiated payment terms with our client that provided some flexibility and didn’t significantly deplete our cash position
  3. The review fix Рwe reviewed our succession model on a regular basis so that we had a range of experienced employees and regular recruits moving through the business. People leave businesses as a matter of routine for a range of reasons and personal development. We structured the business to not be dependent on any one individual.

 

Did it work? Eventually. Business is a dynamic process. Moments of alignment are just the best experience, yet they are not the constant that we always hope for.

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