Organic Growth for Small Businesses: Banks Not Included!

Initially, I was to write on setting goals and continue developing the themes I raised in my first article on growth. Then I received a call from a friend of mine, a business owner, after my last article on strategy. He asked me an interesting question about organic growth and how to fund it. The underlying premise was that financing has become difficult; how does a small business grow? This article addresses various methods of funding for growth, all without using banks!

An established small business has significant potential despite the normal constraints of a lack of resources, an abundance of red tape, attracting good talent, etc. Now added to all that is the current economic environment amidst a pandemic. Businesses are being squeezed from both ends, sales have fallen off a cliff due to COVID-19, and, despite government promises to provide funding through banking and other channels, the process is slow, cumbersome, and unreliable

There are many more sources of funding that an established business can rely on to grow its business without going to a lender. Here are three which any company can implement without much difficulty:

 1)     Customers: innovate for most profitable clients

One of the most underutilised business assets in small companies is its base of long-term customers.

Something which surprises me is that a considerable number of established small businesses never ask their best customers one of the simplest questions. That is whether they would be interested in new services or a complimentary product which suits them! This is not about upselling from existing services or sets of product, but the creation of entirely new services and products.

Complimentary new services or products which can be easily created using existing expertise, or designed & produced with current manufacturing capabilities, are simply not looked at as a possible revenue stream.

Immense value can be added by designing, launching, and scaling new services or products for the best clients, and can provide a business with new avenues for continued growth.

A best client or customer-centric approach is a strategy where products and services are aligned to a subset of customers. This results in:

•   Super segmented clients who feel that they are receiving one-on-one attention
• Long term loyal customers
• Highest margin customer segment
• Increased CLV or customer lifetime value (CLV – perhaps a future article’s topic?) where future revenue from these clients is, to a degree, predictable

2)     Profit & Loss Expenses: Review, redirect, and trim

 Review: General and administrative expenses are one of the areas where savings can be considerable. It is here where a re-examining of processes can yield large savings by redeploying staff more effectively. Instead of this, however, what many companies do is let staff go.

Redirect: Marketing is another expense where, if focus and strategic thinking is applied, returns can be improved with the same budget. Data and analytics can be used to understand which marketing campaigns bring the greatest returns. These returns can be an increased market share, or the development of customer segments with high customer lifetime value. Using this data, funds can be diverted and re-allocated to successful channels, rather than simply deducted from struggling ones.

Customer Relationship Management (CRM) software is generally not well utilised. The sales data from the CRM is not effectively managed. It should be reviewed on a regular basis, analysed, and used to direct the sales team to make better decisions.

Trim: There are expenses like travel and entertainment which should be considered individually. The exact purpose of each spend should be understood, and an expected outcome calculated. If an expense is not yielding the anticipated result, then it should be either stopped or re-directed towards better usage.

3)     Procurement: Negotiate, Negotiate and Negotiate

Everything is negotiable. One of the most important considerations when renegotiating contracts is that nothing trumps savings. There are no sacred cows. These savings should then be put to use immediately.

Systematic approach: Companies should bring a systematic and rigorous approach when re-negotiating annual contracts. There should be policy to put out tenders for a minimum of three quotes for every single contract, from insurance to maintenance, to realise savings of up to 20% on these categories.

Maximise savings: Vendor consolidation is another method to maximise savings in procurement. This will lead to fewer deliveries, thus reducing charges, which has a direct impact on the bottom line.

Ask for a discount: It never fails to surprise me that asking for a discount from a long-term supplier is the least used method to reduce procurement costs. As Pareto’s 80/20 Rule applies to you, so too does it apply to your supplier. You may be surprised at how many suppliers will accommodate such requests to a certain degree.

All the above requires an important element: an intentional mindset with a commitment to change the growth trajectory. An ability to dig deep into data to improve productivity and put in new processes to make better decisions. Ensure this, and growth is guaranteed.