How to steer clients towards profitable growth rather than growth for growth’s sake

A mistake I often see made by clients is targeting growth simply for the sake of growth itself. In my mind growth is not about the top line of a business but the bottom line! I prefer to use the term ‘profitable growth’.

Uncovering the sources of profitable growth

A simple way accountants can help clients look for profitable growth is through three lenses:

1. customers,
2. people, and
3. products

Most leaders know about the Pareto (80/20) principle. If we Pareto using the three lenses we learn how profitable growth is being created and where further opportunities lie. The problem is that most businesses mix their profitable growth with unprofitable growth or, at best, a breakeven performance on profit.

The fact is that 20% of customers give around 80% of growth. Clients might know who these customers are but do we know why they buy? How do we as accountants and advisors apply the lessons from this successful application of growth strategies to the rest of the business? Before we get too excited about flowing the lessons to others we need to apply Pareto in a few other ways.

Which 20% of the client’s customers account for 80% of the profit? Often business leaders need to dig deep to identify these people. Even then, it’s not often clear why these customers are so profitable and therefore it’s difficult to replicate the lessons learnt to others.

The third Pareto is to look at which 20% of customers give 80% of the problems. Too often clients invest resources in keeping the squeaky wheels of their customer base well-oiled rather than focusing on the customers who furnish growth and profit.

Simply by conducting a customer Pareto analysis we can identify improvements for how to attract and retain customers. I suggest that we also analyze, using Pareto, a client’s products and services. Which 20% of the products and services create 80% of the growth? Which 20% of the products and services create 80% of the profit? Which 20% of products and services account for 80% of problems? As we found with the Pareto analysis of customers, there are significant opportunities in reviewing products and services.

The third Pareto analysis I recommend is to look at your clients’ people. Which 20% of the people create 80% of the growth? Which 20% of people give 80% of the profit? Which 20% of the people give us 80% of the problems?

Now we have three lists for each of customers, products and services, and people. We have knowledge, but what are we going to do with this knowledge to assist the client? There are other factors that we should also consider.

Other factors impacting profitable growth

There are many other factors that impact on profitable growth but the key ones for me include competitor analysis, sales process, key performance indicators (KPI’s), capability, capacity, and our client’s ability to successfully implement change. Mindshop has developed tools and processes for each of these factors so for now let me provide an overview of each.

1. Competitor analysis
   With increased globalization resulting in higher levels of competition every business leader is constantly looking over their shoulder for industry disruptions and competitors with the capability of significantly impacting on market share. The Pareto analysis of growth and profit should have helped you identify which products and services are the ones that the client needs to protect in the next year or so. Identifying competitors is often difficult because it is the agile new players that are difficult to see. Even if they’re late in identifying a competitor, undertaking a competitor analysis is a key step. The first thing you can guide your client to do is to list the factors that customers have in mind when deciding who to buy from. You then weight these factors according to their relative importance to the end customer. Scoring your client at midpoints on each factor against their identified competitors (using your client as the benchmark) quickly determines opportunities for improving your competitiveness. It’s a simple process and the benefit is in determining the specific action plans for achieving a better score than each of their competitors.
2. Sales process
   As I list each of the elements of an effective sales process, get your client to think about how well they’re currently doing on each. On my sales process list I have things like CRM, proof of capability, contact program, pricing strategy, sales training, events schedule, website, knowledge leadership, referrals strategy, cross selling, customer surveys, strategic alliances, and so on. It is the combination of each of these factors that forms a sales process that can achieve specific growth goals.
3. KPI’s
   Most leaders understand the need for KPI’s in their business but they focus mostly on outcomes rather than internal processes. If they only measure outcomes, then it delays any corrective actions they may need. I normally limit the number of KPI’s to around five and have two outcomes and three processes that I measure. For example, if I want growth, I measure sales and average sales per customer (outcomes) as well as numbers of contacts per month, net promoter score, and conversion rates (process).
4. Capability
   In our research on change success we found that the capability of both your client’s organization and their people was the biggest factor impacting on success. Too often we do not invest enough in building the capability of our people and organization, in fact, it is this investment that is normally first slashed in difficult times. With the steady exit of the baby boomer experienced people from our organization we are slowly eroding our capability. At the same time, we are finding it increasingly difficult to attract and retain the Millennials to our organization, resulting in a drop in capability (and customer service levels).
5. Capacity
   I’ve always held the view that you need surplus capacity to be able to grow profitably. On some of the boards that I am on, it is expected each year when looking at the financial results, that I add back to the profit figure an extra million or two that we invested in having people on board (before we had the sales to fully utilize those people). I advocate having capacity in advance of sales as it gives me resources for working on the business and not just in the business. What capacity do your clients have for growth?
6. Change success
   In 2014, I released our research on change success. The literature confirms that the normal probability of success for implementing a change initiative (such as profitable growth) is only around 30%. The research drew on organizations in the United States, United Kingdom, and Australia. We found there were three key factors that increase the probability of success of the change initiative to around 80%. The first of the factors was change readiness. An organization must be ready for change and there are five elements to this. The second factor was capability and it was organizational capability (systems, processes, investment, and leadership) and obviously personal capability. Operational capability is easily understood but we found that dynamic capability was just as important. Dynamic capability is things like our ability to grow the business, to retain our people, and to provide exceptional customer service. The third factor was the change beliefs; people must have the right level of thinking (regarding the specific change) to be successful. The three elements of change beliefs are attitude, perceived difficulty, and one we termed ‘significant others’. Significant others means that the key influencers of each of the people need to be in support of the change initiative.

The implementation process of profitable growth

So far I have listed some of the elements that impact on profitable growth and outlined some of the key factors required to successfully implement a change initiative such as profitable growth. Even though it is likely to be different for each situation, a general process that you could use with your clients to implement profitable growth is as follows:

1. conduct a planning event on profitable growth and invite the key people in the business to attend
2. undertake a Mindshop change success diagnostic to find out just how ready they are for implementing profitable growth
3. conduct a Pareto analysis on customers, products and services, and people
4. segment the business and undertake a competitor analysis on key segments
5. review the sales process and map ways to continuously improve it
6. identify five KPI’s, two outcomes, and three process KPI’s
7. analyze capability (operational and dynamic)
8. develop a capacity plan
9. develop a one page plan to implement the profitable growth initiative
10. encourage the celebration of success as and when it occurs

Best of luck in helping grow your clients’ organizations from the bottom upwards!