Business Growth and Ceilings

Surrounding yourself with excellence and combined with the ambition to achieve ever greater heights, is the overriding requirement to succeed in breaking through all the many ceilings and challenges that you will encounter during your business life and career.

Some of the ceilings to look out for are :

Revenue ceilings –

Revenue ceilings vary from business to business.

Start-up businesses normally take some time to grow to R1m pa and then the business needs to define next level for itself. The next level could be anywhere from R1mil pa up to R10mil pa and this growth phase can take up to 5 years to breach.

From R10mil pa annual revenue the next typical income barrier or ceiling is approximately R50mil pa in revenue. This growth phase depends on the drive and ambition of the entrepreneur and in many instances is never reached.

Hereafter business develops up to R350mil pa mostly without recognising different income level ceilings.

At each of the income levels a variety of factors kicks in – fatigue, loss of desire, inability to adapt or resistance to change.

Change is the one great constant in business and in life. The old adage of adapt or die, remains as relevant as ever.

?Any business must innovate to develop and grow.

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Psychological ceilings –

This ceiling is closely linked to the passion of the entrepreneur and ties into the loss of desire and fatigue mentioned above, which prevent an entrepreneur to drive the business through the various revenue ceilings.

?If you are truly passionate about your businesses and are following your passions, you will find it easier to overcome and break through the psychological ceilings that you will experience from time to time.

Psychological cycles & ceilings arise because of the alternation of optimistic and pessimistic expectations inherent in human nature.

As you experience different challenges and hurdles, you can either view them optimistically as growth and learning opportunities and steps to climb towards the next level in business or you can experience them negatively as insurmountable mountains that break your spirit and halt your progress.

Business Cycles and Ceilings

Every business, no matter what the size thereof, will experience swings and roundabouts or up- and down cycles.

These cycles present ceilings, very similar to the trends and movement of a share price on any stock exchange.

It is almost impossible to envisage a business that just keeps on growing in all aspects of revenue and profits.

The cycles and ceilings are caused by gaining and losing customers or demand and supply cycles for your product or service or economic circumstances, which necessarily impact on revenue streams, and we find our revenue and profits increasing and decreasing over time. If we have long term growth trajectories with current lows being higher than the previous highs or at least higher than previous lows, we can safely say that the business is growing.

Navigating these business cycles, is the trick. A Trough is the actual ceiling because this is when your business is facing the greatest challenge, to get out of the slump. A Peak is a similar but different ceiling because you need to try and prevent a downturn and rather find the next upward trajectory. The next upward trajectory, whether coming out of a trough or a peak followed by a plateau, will either require new customers or new markets, which in turn might require new products and services or pricing adjustments to current products and services.

Big data is required in this decision-making processes. Even though it should not be the be all and end all of how you look at and adapt your business, data analytics can be invaluable to compare your business to others.

One of my favourite stories is about how we analysed the point-of-sale trends between different retail stores within the same group of companies and discovered a “secret sauce recipe” with one of the stores, that allowed us to 3X the business within one year. Of course, this wasn’t a literal sauce recipe. The sales data analysis emanating from the point-of-sale reports, showed certain trends resulting from specific actions taken at store level. We were able to identify the positive impact scenarios and applied those positive influences across all branches and in so doing, tripled the company’s revenues in less than 12 months.

Herein though, lies the challenge and the hidden problems of revenue growth. The graph above shows how revenues grow year on year and are accompanied by cost increases which outstrip the revenue growth and thus cause profits to fluctuate and not increase consistently.

Costs typically escalate alongside revenue growth and are hidden by revenue growth. You will likely be lulled into false sense of security regarding safety margins of the business. This is normal BUT if you are tracking you gross and net profit margins alongside your revenues, you will identify this potential problem sooner rather than later.

Sometimes crises such as Covid19 force us to recognise that we can generate the same revenue with far less costs.

In other instances, we may be aware of the cost increases, having purposefully incurred the cost increases to add and create the resources to deal with future revenue growth.

Constant and critical analysis and interrogation of processes, costs and related revenues all help in this regard.

?By recognising the signs, we are more able to understand the data points that always present themselves during either up or down cycles and realising whether we have reached a ceiling within any phase of the cycle that we are in.

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Economic Cycles and Ceilings

Basic economic cycles are expansion, peak, contraction, and trough. Economic cycles are influenced by factors such as GDP, interest rates, total employment, and consumer spending.

Business cycles are the same - expansion, peak, contraction, and trough. The difference is that in business, these cycles are caused by Sales and income, production costs, employment costs, operational costs.

It takes plenty of discipline and ongoing hard work to keep all these factors at top of mind all the time and to manage them all, as and when they require attention, which is mostly all the time.

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Is your business at a ceiling that can or cannot be breached?

The first step is recognising the ceiling, whether it is a Revenue ceiling, Psychological ceiling, Business ceiling or Economic ceiling.

?The second step is to analyse the reasons and determine the facts.

Is the market for your product or service saturated?

A fair amount of market research and knowledge of markets, trends, consumer spend, market penetration and a variety of factors is needed. In my experience, it is often impossible to saturate a market. What typically happens is that your product or service becomes outdated and stale and competitors start to take away your market share and then you perceive this as market saturation, which cannot be overcome. A classic case in point in South Africa was Kirby vacuum cleaners. Their early development and growth was stupendous and they stormed into the market, grabbing market share from competitors with a vastly superior product, which despite a very expensive price tag, became increasingly popular and sales soared. Notwithstanding, the Kirby product development stagnated, and they were unable to compete with a market which rapidly caught up with similar and better features. It is debatable whether Kirby became fatigued or was simply arrogant and refused to upgrade their product to compete and remain ahead of the pack.

Is there Emotional and Psychological Bias?

There is often a large amount of emotional and psychological impact to be found here. Overcoming any emotional or psychological bias is the first part of the solution. It is only once you have overcome this bias, that you can progress to the other phases of solving the problems in your own business and expanding market share and growth.

The potential solutions are to change your marketing strategy or to innovate your products. You need to find ways of increasing market share, increasing revenue and rationalising costs so that profits can increase.

?Prolonged decline from previous high's?

A prolonged decline from previous revenue and profitability high’s is often an indicator of a ceiling that was reached.

The irony is that you almost never recognise this ceiling whilst you are there. You only recognise the ceiling after you have been there and have receded downwards from the ceiling.

If you are monitoring and tracking your financial results in addition to evaluating pertinent business analytics on an ongoing basis, you will see this coming before it happens. We will discuss these tools in detail in chapters 3, 4 and 5.

Once again, the solution lies in being able to objectively interrogate and understand information and all the positive and negative indicators, and to critically evaluate each one and to consider the impact of each thereafter carefully on current and future business models of the business.

However, this only brings you to the reasons for the decline. Now you must create solutions to overcome these hurdles and to not only grow the business back to previous high levels BUT to break through that level and grow to the next level.