Valleys and Peaks
Sometimes we just have to agree to put on the brakes.
Here’s a growing business, and while there are hundreds of customers, net is thousands in the hole. It’s a well-discussed concept, described by the phrase “Valley of Death,” and it primarily refers to cash flow or profitability challenges while moving away from being start-up. It also applies to distinct stages of growth that practically all businesses naturally experience as they scale. Whichever the current business stage or the nearest valley of death we are growing toward, the ultimate causes of that “death” will come from cash flow. However, for an established business, the precursor well before the point of revenue inflection is predominantly the result of a business losing its balance.
In general, most business headaches we regularly address can be rooted down to either a people-problem or a process-problem. An established business that becomes unprofitable has developed an imbalance from its people, its processes, or both. Ultimately, and exacerbated during the periods of moving from small- to medium-size business, product will also suffer due to the misalignment. Borrowing from the term, “adulting,” “businessing” is a blend of art and science where enduring, successful businesses are those who are ultimately able to achieve a balance between them, and then re-balancing often as the business continues to grow.
The science is ensuring that our people understand what our numbers are telling us about the business’ health and having the skills to meaningfully adjust financial or product outputs. The art is keeping our people aligned, as well as skilled to match the needed businesses processes that keep pace with the growth. The balance comes when dividing appropriate amounts of resources between the reinforcement of the business foundation and the addition of customers/complexity.
As example, along with the maxim “Cash is King” another favorite is “If we’re not growing, we’re dying.” Maybe, maybe not. But business growth that is not balanced with its foundational growth can kill not only profits, but also reputation, brand, and culture. The imbalance occurs when the people driving the business forward are still addressing their business outputs with knowledge and systems that had served the earlier version of the business well, but the unaligned growth begins to outpace the skills and/or the capacity of the workforce. Critical mass happens at the point of failure to generate the necessary profits, or the necessary decisions to allocate the resources, sufficient to match the organization’s people-development with its business development. While pricing increases can address some profitability issues, again, there are both relationship limits (how many times, how frequently can we go to our existing customer well and ask for more?) and market limits (how much more than our competitors can we charge?).
Customers who add volume that eats capacity at pricing insufficient to add to that capacity are an imbalance. Pressure to continuously add to workloads beyond your people’s long-term capacity along with expectations of remaining within quality standards is an imbalance. Growing the complexity of the business model or customer base without allowing the time and resources to up-skill the workforce or revisit the organizational chart is an imbalance.
Bringing your business back into balance often requires some counter-intuitive measures, and one driver is applying the brakes to your growth by saying “no” to the customer types that pull you away from your foundation, as well as “no” to customers who simply cannot pay enough to support the foundation’s growth. Achieving balance at this juncture requires identifying the sweet spot within your existing customer-base that is both profitable and in-scale with the business’ current state and applying it to targeting any new growth during the re-balancing period. Understanding that not all money is good money is the perspective to separate which of your customers fall under the category of “good” or “not-so-good.” The exercise of auditing your customer base often has an additional benefit of revealing low hanging fruit that can be quickly addressed to help put you back on the path to balance. Because the “profit-from-volume” paradigm only works within spectra of step-costs (the points where significant investments in the foundation are required to ‘level-up’ or manage capacity), in many organic growth cases a business is better served by contracting to grow, or conscientiously slowing growth to match the pace with the time needed for the foundation to catch up and put the business back in balance.
Successful leaders recognize when challenges from either the science or the art are beginning to pull the business out of balance, and they also understand that’s the time to tap on the brakes to carve out the resources to even the scales.
As the saying goes, two heads are better than one, and the Balance Driven Business philosophy is the solution that will help your organization to keep pace in this new world of business—the ever-increasing speed in which business adaptations need to occur to realign people, product, and profit. Col. Sudip Mukerjee of Reserv3 Consulting and Sean Lewis of SLC Advisory Group combine their specialties for the deep dive needed to bring your business up to date with the people and finance challenges of the New World, and to lay the groundwork for staying competitive well into the future.