Economic growth is very much the topic of the day. By general agreement, it will be the re-energising of the private sector that rejuvenates the UK economy and raises living standards across the board. Much of the current conversation is dominated by talk of creating new technology champions and making Britain attractive to foreign investors.
These initiatives have their place, but often overlooked is the role played by our own domestic business founders in creating wealth and opportunity. Crucially, we have the evidence to prove it. In the first decade of this century a major study showed that just six per cent of high-growth businesses created around 50 per cent of the nation’s new jobs*. Remarkable, really. In a country of over five million businesses, we are talking about roughly 11,500 commercial concerns with at least 10 employees, growing at a rate of 20 per cent or more per annum. They are spread across the country and feature in numerous sectors of the economy.
Perhaps even more remarkable is the same study found this pattern is repeated across the economic cycle, including the banking crisis of 2008-9. It should give us all grounds for hope and optimism. Growing a business sustainably, however, is no easy task. We know most new ventures will fail within five years. If they survive beyond that period, then their chances of getting to 10 years improve significantly – and they have an even better chance of surviving after that.
It might not be easy, but the process of growing a business successfully is not a mysterious black box. There are two fundamental requirements. The business must be capable of scale [that is to say it’s past the start-up stage], and the founder has to be capable of change. In his many years of directing Cranfield’s Business Growth Programme, David identifies five key challenges – or barriers – to growth and the remedies for overcoming them.
- The first is the trap of early diversification. In virtually all cases, entrepreneurs who create a business with independent value, identify a niche where they can compete successfully, and stick to it. However, distractions from the core are too often tempting and invariably consume time and resources with no lasting commercial benefit. Stick to the knitting!
- Second, there is the question of financing growth. Too frequently, businesses rely on expensive short-term measures that are out of sync with their long-term aspirations. In reality there are often better ways to squeeze cash out of the existing business, or attract external capital. Founder of Cobra Beer, Karan [Lord] Bilimoria identified 17 different funding mechanisms to power Cobra’s growth before entering the current partnership with Molson Coors. This is one area where an experienced private bank such as Weatherbys can add real value.
- The third challenge is how founders spend their time. A business can only grow if the entrepreneur devotes significant time to making today’s business better, and fashioning a new business for the demands of tomorrow. Many founders get trapped in endlessly solving other people’s problems or trying to do their jobs for them. Either way, it is a barrier to growth.
- Fourth is the requirement to be better than or different from the competition. Many of the successful firms we have worked with are challengers or contrarians. Hotel Chocolat, for example, set out its stall deliberately to challenge the dominance of Thorntons in retail confectionery; GoApe has gone against much-prevailing health and safety orthodoxy to encourage tens of thousands of people to live life adventurously [and safely] on its high-ropes courses.
- Fifth and finally is the need to demonstrate to the outside world that the business can operate independently of the founder. This means building an empowered senior team that has the discretion and authority to manage daily operations. When serial entrepreneur and investor Lara Morgan decided it was time to sell her first business, Pacific Direct, she moved 90 miles away from the firm’s offices and made herself non-executive chairman.
The move from CEO to chairman is quite a common tactic for founders looking to transition away from day-to-day business involvement in preparation for a sale or, indeed, handover to the next generation.
Nick Gornall comments:
“The creation of wealth has for a long time resulted from human enterprise in business but without sound financial planning and advice, there are pitfalls. Whether you are starting a business or growing a business for sale, you will value partners who understand your needs and are keen to build relationships over time – both are key ingredients of the Weatherbys Private Bank proposition. We also understand the intricacies of succession planning implicitly, as a business that has been under family ownership for more than 250 years.”
Some words of caution for those following the path to eventual sale. As chairman you should have outside interests or, if not, develop them rapidly! Your successor as CEO will need to have the freedom to run this business in his or her own style. It may well not be yours. That does not necessarily matter, providing he or she delivers the company’s objectives.
And finally, our experience suggests that it is just as important to be clear about your life after exit, should you choose to sell. The happiest business vendors are those who have lined up a new chapter of their lives after the sale, whether it’s the pursuit of a long-held passion, engaging in philanthropy or embarking on a new career as an investor or even as a serial entrepreneur. Merely turning wealth on paper into cash is little compensation for finding yourself lacking in purpose and no longer relevant.
Speak to us today
If this article has struck a chord and business growth or having a clear financial plan is high on your agenda, and you would like to discuss it further, please contact Nick Gornall on +44 (0) 7436 239639 or ngornall@weatherbys.bank, or Henry Wilson on +44 (0) 7501 384877 or hwilson@weatherbys.bank. Alternatively, click on the button below and we will be in touch.
Scale-up and Build Your Business: How to Recognise and Overcome the Critical Challenges of Business Growth and Exit by David Molian is published by Routledge.
*The Vital 6%: available from Nesta [the National Endowment for Science, Technology and the Arts] at www.nesta.org.uk.