I am a firm believer in Play big or go home. However, when you are in a hyper growth mode, there are some key factors to keep in mind. First, you must always maintain a “big” thinking mindset. Secondly, you must keep the vision of where you are going with your business. However, all of this can come at a price if you don’t watch the small stuff. They say, “Don’t sweat the small stuff…it’s all small stuff.” That is so true. A mentor years ago said if you watch the pennies, the dollars will mind themselves.
I find the same especially when a business is in what I call hyper or super growth. This means that you are growing at a double digit rate every year…year over year. This type of growth is typically referred to as hyper growth and comes with a price if you are not prepared. In our first few years, we certainly experienced this level of growth and I experienced these lessons first hand.
1. Customer turnover
This may seem so easy, but customer turnover can often be justified with growth strategies. Meaning I have worked with and met many CEO’s who have believed that growth propagates a sense of “sloughing off” of the old or former clients and breeds a sense of re-birth or invigoration of new clients.
However, there is a factor that needs to be considered. That’s the amount of time a customer has been with the business and the relative revenue generated for your business. I call this the GP factor. That is the Gross Profit Factor. It is a figure that is calculated by taking the Revenue a client generates to your business (gross) times the number of years they have been a client less the overhead to manage the client annually.
Now you may ask why the overhead isn’t multiplied by the number of years the client has been with your company. That’s because it is just like calculating the valuation of a company. It is a multiplier factor and the same holds true. The long term value of a client is determined over a number of years, not each year as it relates to expenses.
As you calculate this number annually for each client, when you lose one…what’s the impact? Calculate that as a percentage of your topline revenues and then multiply that by 5 as that’s the real impact over the next five years, which is the average amount of time to build a solid reliable client base for a business.
2. Employee turnover
This is one that many business executives I have visited with don’t even consider. Here’s how I view it. From the receptionist to the dock loader to the packer to the Vice President to the Sales Rep, every single person in your organization is valuable.
I recommend analyzing trends as it relates to turnover. In particular, are there specific divisions or areas of your business that have a higher turnover rate? Also, you “can’t see the forest through the trees.” It’s all about perspective. Take a 30,000 foot look at your organization to understand where you may have pests or cancers growing that are going to take down your organization if you don’t remedy the situation. This is one of the toughest aspects as it requires you to take an unbiased look at the big picture, analyze and then most importantly take proactive measures. I have seen so many companies that have an internal turnover rate that actually should have been a firing frenzy. AND vice versa, situations where it was a mass exodus and management just had their blinders on.
Make it a point to review your turnover numbers monthly and then the key is to compare these numbers to the client turnover numbers. When you look at both, simply stop and ponder what they mean to you and your business in this hyper growth mode.
3. Profit margin
Most will look at this as a pure bottom line number. However, I challenge CEO’s to look at the IPM – Impact Profit Margin. This takes into account the client turnover, employee turnover and compares it to the bottom line profit margin. This will tell a business the real and ultimate impact that the company is going to financially have over the following years.
4. Returns/Cancellations
If you are in a B2B business, returns can be the death of a company. Especially when you are in a hyper growth mode. Even if you are in a B2C business model, the returns are killer when they are in volume or mass quantities.
More importantly, what do returns mean? I look at it and say that a business has failed to deliver on a promise made. Whether that is a promise of quality, on time delivery, value, or type of product. At the end of the day, 99% of people return something because a promise has not been kept by the business. This level of disappointment is something that is hard to handle as you have to re-earn the trust level of a customer whether it is an individual or a business.
How do you mitigate this factor in a hyper growth scenario? I prefer a business create a stated Guiding Principles Policy that outlines exactly what to expect with every delivery of every product or service. This ensures that both parties are on the same page and it will reduce the number of returns significantly. I have seen it over and over both from a B2B and B2C stand point.
Measure where you are when you start and use this as a benchmark to measure against every 3 months. This will show you trends in your business and can then be compared to your growth rate which often depicts a higher amount of returns as the growth percentage increases.
5. Absenteeism
This can be a significant factor. Depending on the size of your company, you may or may not look at your absenteeism rate each month. However, no matter your company size, you should be looking at this number each and every single month. Then you should have it plotted on a graph to show trends that can be correlated to seasons, weather and other external factors.
More importantly, when you are in hyper growth mode, I use this as a gauge as to the stress level of the work force. In hyper growth a business will most likely ask more of the existing work force than is typically required. Usually this will be tolerated. However, there is a threshold and once that threshold is exceeded, employees will become ill or despondent and require days off of work. When you look at patterns of days of week and time of the year you will see patterns that can then be rectified. Anything can be fixed if you just know the situation that you are dealing with.
6. Positivity Factor
This should be an important focus factor. As employees talk, there is often one word that continually comes up, and that word is “struggle.” In my mind, this a clear indicator of a person’s level of frustration. When he is in a state of struggle, he is really in a state of negative energy. This negative state is not only unproductive, it is demoralizing to the rest of your team. How do you maintain a higher level of positivity? This is achieved through many measures but one that is often overlooked is an internal public relations program. Just as a business hires a PR firm for increasing the “public relations” with customers and prospects, businesses need to focus on their internal client…the employee. Effective programs build upon solid guiding principles that should be clearly defined and then throughout the year a company will provide a variety of programs and activities that support the overall “morale” of the company. Positivity should be a priority for more companies as it would make for happier employees which in turn typically generates higher profit margins and fuels the overall growth factor.
7. Tension / Energy levels
There was a study I recently read about that discussed the most effective size of a team. The founder of Amazon is known to have said it is the two pizza rule. If it takes more than two pizzas to feed a team, then the team is too large. In fact, statistics show that a team of 32 people have more than 1,000 connections. That is a volume that cannot be effectively sustained. What’s the ideal team size? History tells us that in Roman days, squads were made up of the number of soldiers that could effectively hear their commander’s ordered during the clash of battle. The average size of a squad? Eight which also was the maximum number of men that could share a tent. Five to seven is the statistic that I have read as the most effective size of a team. This ensures there is a strong level of connectivity amongst the team and provides for the least amount of tension. I challenge you to look at the size of teams you have within your company and then explore the level of tension and energy in each as it relates to the size. I guarantee you will find that the larger a team is, the greater the tension and lower the energy levels.
Hyper growth is more common in companies today. Whether it’s launching a new product, creating a new division or starting a new company. Understanding how to best manage that growth is critical to the viability of the company. These seven keys have certainly assisted me in building my company from ground zero to a level of financial advising on over $30 billion in assets globally today.