IN THE KNOW —
Getting Your Business Porridge Just Right I am sure you know the fairy tale of Goldilocks and the Three Bears. When Goldilocks enters the bears’ house she tries three bowls of porridge – one was too hot, one was too cold and one was just right. The same applies to business growth. There is an optimal rate to grow your business. The majority of building companies grow a bit and get stuck at a relatively small size; owner and one crew – arguably too cold. Some grow explosively, get out of control and then implode – that’s too hot. A few get the formula just right – grow steadily and achieve success. So how do you know what is the right rate to grow your business for longer-term success? Optimal growth rate is affected by many factors, not least of which is your appetite for risk. To grow a company you will need to take a few risks at key times, but it is about gathering as much info as possible and then making that decision. As a business owner you need to make decisions and back yourself, but those decisions should not be rash ones. Asking for advice from others who have gone before you and achieved success is well worth it, plus looking at independent advice from your accountant, and of course a good business coach! Shameless plug. Decide on what ‘success’ means to you over the next five years and put some goals in writing. More important however is a plan to achieve your goals, steadily and with progress checks along the way. One way to plan your growth is to break up your journey into two-year steps. In Year One you grow your business to the next size and then consolidate its systems and performance at that level for that year and the next. You need to prove you, your team and your systems can thrive at this level, before pushing on.
Decide on what ‘success’ means to you over the next five years and put some goals in writing.
In the second half of Year Two you then look at the key success factors you need for a jump to the next level. That could be a key hire or a key system improvement. By this time you should be achieving a solid profit level and so can make that hire decision before you increase sales to the next level, in Years Three and Four. Then rinse and repeat for the next jump in Year Five. Graphically it could look something like this: YEAR 0
$300K
YEAR 1
YEAR 2
$1 million Another LBP
YEAR 3
YEAR 4
$1.5 million Admin person Foreman
YEAR 5
YEAR 6
$2.5–3 million Project Manager
It is likely to be different in your business, but in this example the business is starting out as one man and an apprentice/hammer hand. The next stage to $1 million turnover is to develop a second team, but with the owner still running all the jobs. The next stage to $1.5 million is to get serious about delegation in the field and hire/develop a true foreman role and get more admin help in the office. The final jump to the $3 million level will require a Project Manager to take control of the operations, oversee three to four foremen and free up the owner to focus on sales and customer relations. Note: That final jump may take longer than two years to achieve as you need to develop multiple foremen in the company. The key point however is to take a planned, tiered approach to growth. Lock in the profitability and systems at each level before you push on to the next. That way you are far more likely to achieve sustainable growth, solid profits, reliable cash flow and lower stress. For help in planning out your growth path and making sure you have the systems and skills to make it to the next level, contact The Trades Coach at andy@tradescoach.co.nz
Andy Burrows, Director of The Trades Coach and NZCB Partner. Andy is a business coach, who specialises in mentoring and coaching business owners associated with the construction industry. You can get in touch with Andy on 09 912 1901 or andy@tradescoach.co.nz
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