Summer Reflections for Growth CEOs

As a mentor of entrepreneurs, I am struck that there are only two types of companies – growing or dying companies.  In the middle, lifestyle companies survive for a while until the founder retires or a competitor starts disrupting. Why do we care so much for growth?  All good things come from growth as you can invest, hire, pay more for better talent, train & develop, reward success, host success parties and so on. The valuation of your business is determined by many factors – most significantly growth in revenues especially if this is profitable growth. In USA and Europe, as your business gets to $1m revenues, you are likely to have between 5-15 employees. At the $10m revenue mark, your business will be approximately 40-80 employees and face different challenges. Many businesses struggle to transition from $1m revenues to $10m – it seems like there is ‘death valley’ between start-ups at $1m to scale-ups at $10m. At this stage of $1m revenues, businesses often revert to ‘life-style’ businesses and ‘flatline’. Successful CEOs take their business from $1m to $10m and continue to scale through the barriers beyond as the challenges evolve.  CEOs need to develop with the business to navigate through ‘Death Valley’ and build the foundations for scaling beyond $10m revenues.  

 As we enter summer vacation time, it’s a good time for CEOs to reflect on progress as well as the opportunities and changes in your business required for the Autumn/Fall and into 2020. As you take time over the summer, I am sure you have some time to reflect what’s next in your business and to recharge the batteries for the next sprint in the long marathon.  As part of this, I thought it would be helpful to outline some observations relevant to scale-up CEOs.  I receive lots of questions from scale-up CEOs on social media as well as CEOs that I personally mentor.  Over the summer, I am writing a series of blogs for CEOs about re-energising your businesses after the holiday vacations.  This will provide food for your reflections over the summer to plot your next phase of business growth. Below are some of the questions captured in a Q&A format outline where you could focus as a summer ‘health check’ to come back from the holidays with refreshed thinking and the platform for the next chapter of growth in your business. 

Question 1: If you are in Europe and some of the slower growing economies, how much should you be concerned about a more negative news headlines and economic back drop? 

Reflection: If you have a compelling product or service, you know as a CEO that there will be strong market demand.  There are always ‘naysayers’ and negative macro news stories especially in the summer when the news flow dries up. As a CEO, you keep your feet on the ground and look first to your customers/market.  I would think about telling yourself to grow faster if the market opportunity is there.  Where companies are able to trade sustainable, faster growth for cash usage, then absolutely grow faster.  My good friend and co-investor, Dr Steve Garnett says, ‘Grow fast or die slow’. There is always a competitor who is trying to eat your lunch and your responsibility is to out-grow them and become market or segment leader.  Currently, in macro-economic terms, the USA is going gangbusters with European growth generally slow. Countries like USA and UK are close to ‘full employment’ and one of the hardest things is hiring great talent and skills – hiring should be a key focus for you. This macro noise is a smokescreen as all companies with compelling value for customers will be winning and growing. At company by company level (therefore micro), there is TONS of growth opportunities and quality CEOs can drive the plans for continued growth.  I am sure that some CEOs and companies will blame macro conditions for poor performance – quality CEOs will navigate their companies forwards through almost any wider macro environment.

Question 2: Where should you be on generating or burning cash?

Reflection:  This will be unique to your business and your market growth opportunities. As generic advice, from the ’get go’, you should be building the culture with values for your company explicitly. One aspect of the culture should ‘treat company’s money as your own’ which drives the right behaviours and means only investing for growth and hiring the best talent.  

It is natural human behavior, that you obviously feel more comfortable if you are generating cash.  However, this is where you trade cash usage with accelerating growth if you are confident that the investments in sales, marketing (and product) will pay off. Simply put, if you are confident of growth, then it would be sensible to look at deploying more cash/investment into the business. It is obviously smart to have a ‘low/zero’ burn plan that you can revert to if required where the accelerated growth fails to materialize. As a rule of thumb, I advise that you want to have an 18 months cash runway and if there are valid concerns on macro or slow-down of demand for your products, then increase your cash buffer, and be mindful of how you could extend your runway to flip to cash generation if needed.  Quoting from an inspiring friend, Evan Carmichael, ‘Make money before you raise money’.  If you have an attractive business, then you will always be able to raise money from your angel investors through to Series A and beyond.

Question 3: If you are growing and want to secure an 18 months cash runway for growth/investment - is access to capital an issue? How about access to patient, smart capital (i.e. a little bit of expertise for the long-term rather than just a check-book)?

Reflection: There is a ‘wall of money’ for quality businesses. However, before you set out to raise money, plan to multi-task between ‘running the business’ and raising investment carefully. Raising money is a whole sales process like any other – it takes time and is a distraction from the day-to-day business.  First, you need to find the investor prospects where you proposition will play well.  It is harder to find ‘smart’ and patient capital. A good idea is to use your network or approach someone who has completed your business journey a couple of times and who has the time to mentor, empathise and use their experience to accelerate your growth sustainably. This way, you gain capital and get to work with an invaluable coach in your business marathon. The starting assumption is to assume that capital is not smart until proven otherwise.