If you start a new business, ultimately the goal is probably to turn a profit. This requires growth in turnover, whilst at the same time controlling costs.
The best way to maximise profitability is to run a lean business model driven by efficient processes. But in reality, this tends not to deliver growth.
The Balancing Act
In small businesses, success comes from innovation and agility. You can have an idea on Monday and be on the way to implementing it by the end of the week. Whilst big organisations have more resources and can outspend you, the same process would take months or even years for them.
This agility leads to great competitive advantage and through that, to growth. So for small businesses, agility is often the key to growth. But there is a cost. Being agile means that your efficiency will suffer and ultimately it will restrict the ability to scale your business model. So agility on its own is not a recipe for long term success.
To be efficient, you need to install processes to manage your business. These will bring down costs and improve profitability, but rigid process can stifle significant growth.
The value of process is another post entirely. Here, I want to focus on how to balance agility and process to deliver manageable, sustained profitable growth.
Planning for the future
The key is long term planning and the acceptance that the development profile of a business is not going to be linear.
Growth at the cost of profitability
In the early days, the priority will be growth, and the focus should be on agility. The aim is to work with the market to hone your offering to deliver maximum impact. This is likely to involve being willing to quickly change the way you do things in light of your developing a better understanding of the market.
But even here, the aim is not an unplanned free for all. In an earlier post, I talked about the planning philosophy of “Do stuff and iterate“.
Yes, I do see the irony. To be agile, you need a structure to manage things. The issue is where the focus lies. The process should create an environment where development and growth are planned, but where the process supports and drives activity rather than controlling and stifling it. Without this structure, the danger is that activity will be either erratic and ineffective, or worse still will not happen at all as the day to day takes over.
Show me the money
The approach above should allow an organisation to identify and quickly transform to meet the needs of the market, and through this agility, to grow. However, it is likely that this will be at a price; and that price will be profitability.
So at some point, the focus needs to shift to building processes that put structure into the organisation, making it more efficient and thus more profitable. Whilst this step in the planning cycle is likely to stifle growth, it is a necessary step, but one that does not need to be open-ended.
Time to repeat
Focus on process should bring costs under control, and improve the manageability of the organisation. This will then allow scope to “give the organisation its head”, focusing again on growth. And thus the cycle repeats.
The result is a classic saw-tooth growth curve which in the long term delivers both growth and profitability.
The key to this process is planning. To manage it effectively, you need to understand where in the cycle your organisation is and manage your way forward accordingly. The irony continues. Even when focused on agility rather than processes, you need a process to manage your agility! The trick is:
Make sure the process works for you and not you for the process.