How awe.some is your small business?

– 9 minutes read

At eRational, we strive to build a world of real opportunity – one leader, one business, one community at a time.

To that end, we focus on small businesses* that can deliver high-growth and high impact. Why? Because small businesses matter. They account for almost half of the Gross Domestic Product. They create the most jobs. And they and deliver the most innovation (1). Despite what a lot of folks on Wall Street want you to believe, Main Street is the real engine of our economy.

So, how can we determine what businesses have the potential for high growth and high impact? We developed a scorecard that we call the A.W.E.S.O.M.E Growth Index.

How does it work?

It's a simple two-part scorecard with a series of basic questions. 

1. The first part evaluates how much impact your business can aim and hope for. – That's your impact score (out of 10). 
2. And the second part evaluates how much growth your business can achieve. – That's your growth score (out of 10).

You multiply the first result (out of 10) by the second result (out of 10) and that gives you an a.w.e.s.o.m.e. growth index (out of a 100).

What kind of questions? What kind of impact?

First, we look for Ambitious Wonderful Entrepreneurs. We want to work with people who are trying to make a difference and ready to dig in deep to get it done. We like them ambitious, we want them focused on something wonderful and we work with movers and shakers. Here's how we define each of those dimensions...

Ambitious – 3 pts

Ever heard of the big hairy audacious goal (2) from Jim Collins' incredible Built to Last? That's the epic stuff that puts a dent in the universe. That's what we're looking for. How bold is your mission? To determine that, we break it down into three fundamental aspects of your business:

• Ambition matters for many reasons. One of them has to do with how many people you can help with the value you deliver. If you're looking to help a billion people, eRational betting on you can mean having a massive positive impact in the end. That counts for something. That number doesn't tell the full story, but it sure does help.
• How fast are you trying to achieve this? How ambitious is your timeline? Are you aiming at fast growth and prepared to invest accordingly, or just hoping for the best?
• And how global will your mission be? Are we talking about touching a few countries or are you trying to make a difference on a global scale?

Wonderful – 4 pts

won·der·ful/?w?nd?rf?l/

adjective

inspiring delight, pleasure, or admiration; extremely good; marvelous."they all think she's wonderful"

Verne Harnish and his team at Gazelles are some of the world’s foremost experts in high growth. Here's how they describe the impact of deep purpose in Scaling Up, their best seller on how a few businesses make it... and why the rest don't (3):

“Without a Purpose more heartfelt than that of making money [...], employees will pour their enthusiasm and energy into something else. Research finds that if you ignite and capture their hearts, not just their heads, they will give you 40% more discretionary efforts”.

It's true that there is now a lot of self-centered greed that plagues the business world. In spite of it, making a difference in the world will not only fill your soul, it will also build a better and more productive business. It’s the essential difference between a vision of abundance and one of scarcity. Being successful as a company DOES NOT have to be a zero-sum game.

• This problem that you're solving, how much does it impact the life of your customers?
• Let's have a look at the culture that you're breeding and the values you live by. How much does it contribute to the lives of your employees, your partners, and your suppliers?
• Are you delivering more value than you take from the ecosystem? Your customers invest their hard-earned money with you. They trust you with a piece of their livelihood. Do you deliver enough value to create an outstanding return for them? Are they just slightly better off? Is it a mere incremental benefit? Or are you able to deliver true exponential value?
• How much of the value your business creates flows back to the community in one way or another? Does it all end up just making a very small handful of shareholders richer? Or does it flow value to the community with fair wages? Does it create good jobs? Is it fueling a local supply chain or supporting locally owned small businesses?

Entrepreneurs – 3 pts

There are many ways to define entrepreneurship. Some see it as defined by the act of starting a business. We like how Joseph Schumpeter described entrepreneurs as:

innovators who participate in the creative destruction that constantly destroys old economic arrangements and replaces them with new ones (4).

For us, it’s not just a matter of taking risks and enjoying the rewards. It’s a matter of being able to build something that delivers value. You can create a lot of value for everyone involved when you replace old ways of doing things with better ones.

To achieve that, you need a robust business model that's desirable, feasible and viable. the Business Model Canvas (5) framework can help with that. – Thanks to Alex Osterwalder and Yves Pigneur with their phenomenal work at Strategyzer.

We've also included here definitions from Kristann Orton, from her great article on (6) what to look for across the three dimensions:

• “A test for desirability focuses on whether your solution is a nice to have or a must-have for your customer. Ask yourself, what task am I helping my customer complete? What does the successful completion of that job or task look like for them? Looking at what they are trying to do and why it is important to them puts yourself in their shoes, lets you look at your solution from their eyes.”
• “A test for feasibility measures the operational capabilities leveraged in a new solution. It asks the organization to look internally and objectively assess their strengths — technology, financial, branding, customer service, partnerships, etc. If a new solution can leverage ~80% of current operational capabilities and new capabilities can be built where an organization is already strong, it will strengthen the foundation of the company and the competitive advantage of the business. Feasibility asks the question, how can we build this solution to make our business healthier and stronger? If a solution requires building completely new capabilities, the investment is riskier because of the number of resources required And because it may change the market’s perception of the company, not always for the better.”
• “The final test for your innovation focuses on the value chain of your solution to ensure that it is viable now and in the future. Testing for viability asks, does our business model fit with the way our customers want to use and pay for our solution? Is the way we build our solution and the way we buy from our suppliers profitable? Viability not only looks at profit, it also looks at sustainability to ensure that your business contributes to community and society.”

And that sums up what we initially look for in Ambitious Wonderful Entrepreneurs. First, we need to attest to that solid foundation. What you are trying to accomplish has to resonate with our core values. It has to be impactful.

Then, it's time to ensure the business has everything it takes to ramp up – hence the concept of Sustainable Ongoing Market Expansion.

Sustainable – 2.5 pts

To measure the impact of your growth, it's important to pause for a moment and look at the effect your business has on its surroundings. Will you leave the world a better place for our kids? How conscious are you of how the business impacts others?

• How kind is your business to the environment? (how circular is your business model?)
• How much do you improve the quality of human life? The more impact your business has, the more potential there is for organic growth – through referrals, testimonials, evangelists, promoters, and word of mouth.

Ongoing – 2.5 pts

The first portion of your growth, to go from zero to somewhere like one million in Annual Recurring Revenues is most often the hardest part. It is extremely difficult to generate that kind of recurring revenue with the lack of resources that startups and new businesses typically face. How much traction have you achieved to date? If you have momentum and traction, we can accelerate that. If you're still at a standstill, it doesn't mean you won't make it, but your potential for growth is far from established.

• What's your current month over month growth, in recurring revenues? Businesses with non-recurring revenues can grow fast, but you're fighting an even worse uphill battle. You need to find a way to generate recurring revenues.
• What's the lifetime value of a customer? If you're selling something that generates a lifetime value of 10 000$, you may be able to achieve massive growth if you have a huge market share. But in general, it is much more feasible to grow fast if your lifetime value is in the hundreds of thousands. High ticket items with a lot of stickiness and a loyal following tend to enable faster growth.
• What's your profit margin? Whether you are greedy or not, your profits are the lifeline of your business. If you have a high-profit margin, you can breathe and you can fuel your business and its growth. If you have tight margins, you're much more at risk when anything happens. And in business, as you know better than anyone... things go wrong, all the time. Better margins make for more resilient businesses with higher growth potential.
• How fast is your sales cycle? Have you looked at how much faster your business could grow if your sales cycle was 25% faster? 50% faster? Having a huge lifetime value can help but it'll be challenging to grow fast with a sales cycle of 12-18 months. Not only does your cash velocity impacts your ability to invest and grow but your test rate for any marketing initiatives will also be incredibly challenging. A business with a short sales cycle has a much better chance of growing fast for a multitude of good reasons.
• What's your monthly churn rate minus your upsell rate? If you achieve negative churn, you are looking at exponential growth. This is when you upsell and cross-sell more than you lose clients (7). You can still achieve fast growth without it, but you better keep your attrition rate very low... to have a real fighting chance.

Market – 2.5 pts

Make no mistakes, growth happens mostly at the business level but it does help to be in a fast-growing industry. How much growth is left in your market? Are you going after a highly saturated market or are you trailblazing with a wide-open market at your feet?

• How many potential customers are there in your total addressable market? Can you easily add thousands or millions of customers? Or will you have to fight tooth and nail for a few handfuls?
• How much is that market growing year over year (YOY)?

Expansion – 2.5 pts

If you're not yet familiar with the superb work of Salim Ismail, Yuri Van Geest & Michael Malone, I highly recommend you dive into Exponential Organizations (8). It offers a robust mental construct to evaluate the different growth factors that fueled the exponential growth of platforms and exponential organizations over the last decade or so.

If you're building your business around some of the powerful catalysts described here, your chances of achieving high-growth are significantly greater. Let's have a look at how exponential your organization and your business model currently are (9).

In the first half of the model, they examine different components around I.D.E.A.S:

• Interfaces - "Interfaces are algorithms and automated workflows that route the SCALE outputs as efficiently as possible to the right people within the organization."
• Dashboards - "To track and monitor performance, all members of an organization can access real-time metrics via a dashboard."
• Experimentation - "ExOs use methods facilitating rapid experimentation and process improvement through fast feedback loops."
• Autonomy - "ExOs have flat hierarchies to promote agility and accelerate learning and reaction times."
• Social Technologies - "Social technologies drive real-time, zero-latency conversations across the organization." 

In the second half of the model, they examine different components around S.C.A.L.E. :

• Staff on Demand - "To act quickly and flexibly in a fast-changing world, ExOs leverage external contractors. Outsourcing as many tasks as possible rather than maintaining a large full-time workforce allows companies to fill expertise gaps and ensure a constant flow of fresh ideas."
• Community & Crowd - "ExOs build and join communities, and they crowdsource or crowdfund ideas to achieve rapid growth."
• Algorithms - "Companies such as Google, Airbnb and DHL are based on algorithms, which allow for dynamic pricing, credit card fraud detection, traffic optimization and much more. ExOs use machine-learning technologies to refine these algorithms."
• Leveraged Assets - "Renting, sharing and leveraging assets such as office facilities, machinery, copiers and even office plants has long been standard. Now, companies are increasingly outsourcing mission-critical assets. Apple, for example, uses its manufacturing partner Foxconn’s factories for key product lines. Not owning assets increases agility and allows quick scaling."
• Engagement - "User engagement techniques such as gamification and incentive prizes help ExOs to engage markets quickly."

Now what?

And there you have it. These are some of the different aspects of your business we can look into. We'll get a better feel for what kind of impact and what sort of growth potential you're looking at. And it'll give us your score on our A.W.E.S.O.M.E Growth Index. It's still experimental. It's by no means scientific yet. It's just a framework and a matrix we can apply to think probabilistically. – as Ray Dalio (10) would highly recommend we do.

It will be quite interesting to refine the model and build an algorithm around it. And to bolster it as we accumulate more data around some of these relations and correlations.

In the meantime, these are concepts we actively explore and improve with our high-growth customers. We help refine their value proposition statement. We tweak their business model. We launch their customer acquisition funnels and experiment with various growth hacks with and for them.

Would you like to discuss your own growth potential? We're always happy to explore some of the challenges you're facing. Chances are we will find a way to be better together. Let's get to it! :)

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*For brevity purposes, we use Small Businesses in this article when referring to Small and Medium Businesses (SMB) or Small and Medium Enterprises (SME).

Footnotes & sources

Here are sources for some of the awesome work we showcase, reference and mention in this piece. None of what we do would be possible without the pioneering efforts of these amazing thinkers and tinkerers. Check them out if you're not already familiar with this impactful and meaningful material.

• (1) source: Small Business Administration is a great source of reliable data on SMB and SME
• (2) source: Built to Last by Jim Collins entailed years of robust scientific method applied to what allows businesses to significantly over-perform their peers and last for decades
• (3) source: Scaling Up by Verne Harnish and Gazelles is the most impressive framework connecting the dots on how to systematically scale a high-growth business. Instead of reinventing the wheel, it builds on the shoulder of giants, aligns with the previous models you're already familiar with and brings it all together in one comprehensive approach to getting it done.
• (4) source: Investopedia in ref. to the work of Joseph Schumpeter
• (5) source: Business Model Generation by Alex Osterwalder and Yves Pigneur from Strategyzer redefined how we design business models, value propositions and dynamically adapt them over the life of a business. It was the collaborative effort of over 400 entrepreneurs, academics, design thinkers and is now used by 5 million entrepreneurs to capture value.
• (6) source: Desirability, Feasibility, Viability: The sweet spot for Innovation – a great piece on Medium by Kristann Orton
• (7) source: how-to-achieve-negative-churn-and-why-it-matters – Patrick Campbell from ProfitWell paints a masterful portrait of what negative churn can mean for your business.
• (8) source: Exponential Organizations by Salim Ismail, Yuri Van Geest & Michael Malone is a fresh take on what makes modern organizations go exponential as we watch the platform revolution unfold.
• (9) source: OpenExo, the incredible organization built around Exponential Organizations and their phenomenal disruptive growth
• (10) source: Check out the inspiring Principles by Ray Dalio who was already using artificial intelligence over 30 years ago to build proper prediction models for business performance and built the largest hedge fund in the world. Ray now dedicates his life to sharing and teaching the principles that allowed him to be that successful.