Why Every CEO and Management Team Needs to Understand Strategic Revenue Readiness

Most business owners, CEOs and management teams that I’ve worked with generally have an understanding of how their business has performed historically. A quick peek at your financials will tell you the honest truth, and since most lower-middle market companies have been around the block, they know their financials pretty well and can pick up on things like seasonality, delays in AR, and all of the external factors that impact cash flow variability.

But for growth-oriented companies, the conversation on whether they will hit their short, medium, and long-term revenue targets is much more uncertain. In fact, most management teams doubt their ability to hit new revenue targets because the contributing factors that lead to revenue growth are difficult to measure and manage. Despite this fact, many recognize they are going to have to invest in areas of their business that contribute to growth, but have no clue where, what the risks are, and which areas require the most attention to deliver the biggest bang for the buck.?

In my experience, leadership teams struggle with answers to these questions primarily because the causal chain of events that leads to revenue is poorly understood in most organizations. Companies don’t have a methodology in place to measure and understand how their intangible assets (i.e. people, culture, processes, data, etc) contribute to future revenue performance. This means that they go largely unreported, which makes them nearly impossible to manage, measure, and make informed improvements on. For owners, CEOs, or management teams tasked with growth, they are largely flying blind.

Additionally, leadership teams have poor visibility into the capabilities and potential of their revenue-generating functions. This makes it difficult to build consensus on the “math” of how their company can grow and the capabilities that can create the greatest value for the company. This is why understanding your company’s strategic revenue readiness is a critical business discipline if you are going to grow reliably and sustainably.

What is Strategic Revenue Readiness?

I don’t think there is a formal definition that exists, none that I am satisfied with at least. But here is how I think about it. Ask yourself, “Are my sales, marketing, service, finance, and product teams well aligned with our new strategy? Is my team bought into the plan? Do we need to invest in some areas, and not others? What are our competencies and capabilities?” All of these questions hint at your company’s strategic revenue readiness.?

Strategic revenue readiness is all about how well positioned your growth resources are today so that you can hit your revenue targets tomorrow. The challenge is that these business assets are “intangible” and the causal chain of events that lead to revenue growth doesn’t get reported in the same manner that standard finance practices report on tangible assets, liabilities, cash flow, sales, expenses, etc.

The Importance of Strategic Revenue Readiness

The companies that think about organic revenue growth this way are better able to know the exact status of their organizational health. Why? Well, one major reason is that the intangible assets that generate revenue growth are difficult for competitors to replicate, which means they are a massive source of sustained competitive advantage. By determining your company’s strategic revenue readiness, you can make better decisions on where to invest, reduce operational risk, and grow more predictably.

To adopt this philosophy, it's important to understand the functional value drivers that create sustainable and predictable revenue growth in any company.

Adopt an Operational Focus

It’s important to recognize that revenue generation is an important operational discipline. In today's modern organization effective alignment across sales, marketing, customer success, technology, finance, and product teams forms the backbone of the entire revenue cycle. It’s critical that leaders take a holistic approach which means looking at things like culture, strategy, people, process and other core functions that are linked to the revenue process. By adopting this perspective, companies position themselves to uncover and capitalize on hidden opportunities for revenue growth. This involves recognizing that every aspect of the organization, from the way teams communicate to the manner in which strategies are executed, contributes to the overall revenue generation capability. Identifying areas of leverage, leakage, and scale is the first step to understanding a company’s capabilities.

Bring Alignment Into The Forefront

When thinking about your own company’s capabilities, it's really all about how aligned your growth resources are in the context of the strategy you are pursuing.

If your company has a sound strategy and if your revenue-generating assets are aligned with that strategy, then the assets will create value for the organization. If the assets are not aligned with the strategy or if the strategy is flawed, then revenue-generating assets will create little value, even if large amounts of capital have been spent on them.

It also means that the customer-facing teams that generate revenues – and the operations, systems, data, and processes that support them – must effectively share information, leads, and data along the revenue cycle. If they fail to do so, companies risk revenue and margin leakage due to the siloed nature of how most growth functions operate. This is why the discipline of Revenue Operations has emerged as such an important management tool to unlock and realize the full revenue potential in a business.

Get a Complete Picture

You have to look beyond just the financial output if you are going to get a truly accurate picture of how well you are positioned to meet growth expectations. Traditional financial analyses, while necessary, fall short in providing a comprehensive and complete understanding of a company's revenue generation capabilities. This is primarily due to their limited scope, focusing predominantly on historical financial performance without adequately considering the complex chain of events that are required to drive future organic growth. The failure of conventional revenue assessment methods to capture these elements leads to a significant undervaluation of a company's true growth potential and its ability to meet financial targets. This is the underlying reason we created the Quality of Revenue assessment, which is a comprehensive evaluation of a company's intangible assets.

Strategic Revenue Readiness is an important model for CEOs and management teams to adopt if they want to build resilient businesses that grow more sustainably and predictably. By embracing this approach, leaders can gain insights into their company's true growth potential, ensuring that every aspect of the organization—from culture and strategy to operations and customer engagement—is harmoniously aligned with their growth objectives.

Until next week!