Having been one of an all-time record 85,000 new companies launched in 2020, we at GrowthBuilders have focused our energy on a sustainable growth plan. During the past year, we have all lived through change at an unprecedented pace and this is not expected to let up any time soon.
As a business, we need to be agile and responsive to be able to identify and act on the next opportunity. We have developed our value proposition, identified and profiled our key stakeholders and developed a route to market which leverages off our strengths and our partner ecosystem.
The UK tech sector has thrived during the pandemic. In fact, Tech Nation reported that UK tech VC investment hit a record high of $15bn in 2020, placing us third in the world, despite the challenging conditions.
Living, working and raising a young family in Devon, I am particularly proud to see the South West region post a record year, with Bristol and Bath ranked 12th across Europe for tech investment, ahead of Barcelona, Cambridge and Madrid.
So what do these companies need to do now to ensure they grow in a managed and sustained way?
1. Accept that business growth isn’t linear
It’s a common misconception that business growth is linear. In fact, if you plot business growth on a chart it will look more like a staircase. With each new challenge or business issue (talent, skills, resources, customers), growth plateaus until the issue is fixed and the business can accelerate forwards again.
The way to ensure your business grows at a continuous rate is through a cycle of performance management and optimisation. You need to plan, execute, measure and repeat. For example, we support our SaaS businesses to forecast their cash burn requirements based on their sales forecasts, measure the return on investment through new clients acquired and measure the effectiveness of their sales strategy by monitoring client acquisition cost : customer lifetime value.
The key is to ensure new talent is brought into the business at the right time to build the pipeline, secure new clients and deliver the service. Gross margin and cash suffers during the investment phase but if the recruitment plan is coordinated effectively and customer acquisition cost is closely monitored then growth can be managed sustainably.
2. Set your targets
Where performance targets are set well and aligned to the strategic goals of the business, they can direct actions and ensure that everyone is pulling in the same direction.
Well formulated KPIs can drive insight, agility and confidence to make the right decisions at the right time. To be successful, KPIs need to be smart, concise and relevant to the business.
For instance a SaaS business would want to track monthly / annual recurring revenue, client renewal rates, client churn rates, average customer contract value, cost of customer acquisition and lifetime customer value. To be relevant and drive performance these metrics should be agreed in advance and aligned to industry norms. Staff performance and behaviour should be measured against these targets so everyone is pulling in the right direction.
3. Make a plan
Effective business planning and forecasting results in an overall reduction in cost or time and thus drives up profits. A robust financial forecast that is built to consider a range of issues which may impact the business can help management to monitor and respond to changes in market conditions, customer trends, cost volatility and external factors. Effective scenario planning and cost modelling will assist management to identify good opportunities and respond to market changes. It will build confidence from your suppliers, customers and investors.
We provide all our clients with a three way financial forecast (profit and loss, balance sheet and cashflow) so they can understand the impact of their growth targets and see if they have sufficient cash runway to meet them. A well built forecast can validate a business plan or in the case of one of our B2C client’s, identify the need to pivot.
4. Monitor performance
It’s no good having a plan if you don’t track your performance against it.
Accurate and timely management information provides insight to inform decisions which in turn results in cost reduction and profit maximisation. Having the right information at the right time is crucial to support management in making tough decisions quickly and confidently. The key is to ensure the information is:
Relevant - does it inform your decision making? Data is great but it has no use if it doesn’t result in action within the business.
Concise - focus on the key metrics that matter to your business. Keep this down to a manageable number so they don’t become a distraction;
Accurate - are the accounting records and data up to date and accurate? We recommend having one source of truth and integrated systems so you don’t spend all your time collating, checking and understanding the data;
Understood - are the metrics clearly explained and understood by management and investors? Have well defined KPIs and apply this consistently from month to month.
The year-end process is a great time to take stock and assess whether you’re on track. Review your performance against the goals you set at the start of the year and assess what went wrong, how you reacted to change (both internal and external) and decide how you want to adapt the business planning process for next year.
We are currently going through the budgeting process with a B2B tech company and the starting point for us is to look at what happened last year, whether our budget assumptions were right and what we need to change to improve the process this year. Understanding the pipeline conversion rate and timescale has been key to improving the accuracy in their sales targets for the year.
6. Get help!
Investing in the right support and advice is key to achieving sustainable growth. A recent report commissioned by Beauhurst looked at the relationship between companies that made a senior finance hire or appointed an outsourced CFO and those that didn’t. They found that:
“those companies that have made a senior finance hire have significantly higher average turnover than those that don’t”.
For early stage companies, the finance function can often be seen as a cost rather than an investment but the reality is that those companies who invest in financial forecasting and strategic planning often secure higher revenue growth or exit valuations. For post seed funded businesses an insourced finance team provides the opportunity to tap into experience on a part-time basis. Get in touch today to see how we can help you get insight to inform decisions.