Articles - Six Barriers to Business Growth
The Six Classic Barriers To Growth In Owner-Managed Businesses
Through many years of working with the cream of Britain’s entrepreneurs, Cranfield faculty have identified six key barriers to growth – and how they can be successfully overcome.
Barrier 1: The Planning Vacuum
Growth is a risky business and the greater the risk, the more important it is to have a plan that serves as a route map. Owner-managed businesses with business plans perform better than those that don’t, showing superior growth in sales and profits.
Barrier 2: Muddled Marketing
Too many small businesses diversify too early and lack market focus. Nine out of ten of the fastest growing and most profitable small firms we have studied achieve those results by focusing on their core products/services. Their product or service is differentiated and they have a better understanding of their customers’ needs.
Barrier 3: Mismanaged Change
All business growth and development calls for change. Unfortunately, our experience shows that most founders try to run growing businesses in much the same way as they did when the firm was very small. The problem is that businesses, like human beings, pass through different phases, and each phase calls for a different approach.
Barrier 4: Meddling and Misspent Time
Most owner-managers work long hours. But does successful growth demand working harder, or smarter? Our research strongly suggests that too many owner-managers spend time solving other people’s problems for them. By far the most important task for the owner-manager is to work on the future strategy for the business. Yet the typical owner-manager spends only 10% of his or her time on building the business for. ...tomorrow.
Barrier 5: The Wrong Objectives
Not all firms have clear objectives. But those that do, often have the wrong ones. All too frequently sales growth is the sole and primary target, set without regard to other critical objectives, such as gross margin, net profit and cash generation. In fact, growing turnover is often at the expense of profitability. For most of us, greater profit, less work and fewer problems seems preferable to rapid sales growth and lower margins.
Barrier 6: No Financial Strategy - and Poor Controls
More than half of owner-managed firms in the UK rely exclusively on their overdraft as their means of long-term finance. Of course, if you have no business plan, you have little idea when you will need the extra cash – and the easiest money to get in a hurry is an overdraft. In reality, there are many different financing instruments available even to smaller firms, above and beyond short-term bank borrowing. The problem of no financial strategy is often compounded by inadequate financial controls. Again our research found that more than 50% of small firms have no financial budgeting process, and even fewer have sufficient controls in place to do anything more than “grope forward in the fog”, as one owner-manager memorably described it!
Can Investing in Management Development Overcome the Barriers to Growth?
We believe it can. Our research shows that smaller firms who invest significantly in training their people are more likely to grow their profits as well as their sales consistently. And the owners are likely to work fewer hours and get more fun.
By David Molian,
Bettany Centre for Entrepreneurial Performance and Economics