(and the 3, that I wish more CEOs asked)
In my recent blog post, The 5 Reasons Your Company Might Not be Growing, reason #3 turned out to be a bit of a wake up call for some of my readers. It was: You’re Sitting on Additional Profitability, but Don’t Know It.
Their reaction speaks to the fact that most CEOs and organizational leaders tend to think about what they need to add to their companies to take them to the next level, rather than asking themselves, “What are we doing now that is underleveraged and needs to be maximized?”
This is not to say focusing forward is wrong.
After all, growth, by definition, is all about forward motion. Yet CEOs can too easily miss out on the additional value they could create immediately from their company – exactly as it is right now.
It’s much like a cyclist who wants to climb hills faster. He might buy a lighter bike, invest in an aerodynamic helmet, but what he doesn’t consider is that investing instead in losing 5 extra pounds would actually make the most significant difference.
In other words, when it comes to climbing hills faster, he is already sitting on (in this case, quite literally) his success factor.
Which brings us to the first of the three most common questions CEOs in growth mode ask:
Question #1: Where Should I Invest to Grow My Company?
This is an excellent question, one that must be asked by every growth-focused company at some point, but my first response is typically this: What have you already invested in that’s not yet maximized?
Asking this question creates the good habit of looking within more carefully and also works to end the habit of throwing money at the problems of sluggish or no growth whenever they occur.
Question #2: Should I Outsource or Hire?
Not long ago, I facilitated a conversation on the “how-to” of growing a company with a group of business owners at a local event (Wagonheim Law’s monthly Drink ‘N Think). Attendees were asked in advance to share the questions they most wanted the answers to and this question was at the top of virtually everyone’s list.
It’s not surprising. Whether or not a CEO outsources or hires (and this includes everything from leadership roles to admin staff to business functions) can quite literally make or break a company.
Generally, I guide business owners to pay only for the exact amount of time and specific type of talent they actually need when they actually need it. After all, its usually those non-essential, not-related-to-growth-strategy expenses that cause most start ups to fail, and the same lesson should be taken by companies at every stage in the business lifecycle.
I’m also known for advising CEOs to regularly re-examine their org chart once they do add full-time staff members.
Has an individual outgrown their position?
Has the company outgrown an individual?
Is someone great at their job being promoted simply because that’s what you do when someone does a great job even though the company will be hurt because of it?
Clearly, when it comes to the decision to outsource or hire, and to every single issue related to either, there is much to consider and it’s easy to see why the majority of CEOs in growth mode ask and re-ask this question again and again.
Question #3: How should I fund growth?
This question makes the top three not only because it is truly a question I hear from almost every client, but also because it’s one of the most important questions a CEO in growth mode can ask.
It also brings to the surface a plethora of related questions:
What’s the best way to grow my company if I don’t have the financial resources?
How do I find investors and what type?
What about growing through strategic partnerships?
What are banks, funders and other investors looking for?
While the answer to any of the above depends on the specific company and its growth goals, there is one that is easy to answer for almost any business and that is: What are investors looking for?
Here are 7 action items to make sure your company is attractive to funders of any type:
- Eliminate excess costs.
- Be consistent in your presentation.
- Have qualified leadership in place and showcase them well.
- Have an actionable strategic plan that shows growth.
- Hit or exceed your annual budget.
- Bring in experienced legal counsel.
- Depending on the type of funding, have audited or review financials for the past three years.
Now for the 3 questions I wish I were asked more often by CEOs in growth mode:
Question #1: What metrics should I be measuring?
Specifically, I wish more CEOs in growth mode asked: What metrics are critical for revealing my company’s progress toward its growth goals?
I emphasize the “my” because while there are certain common metrics every company should measure, and while many of those related specifically to growth are common to many companies, saying it this way prevents a too-generic approach to measuring the success of a growth plan and makes sure you, as the CEO, are putting your energy and resources where they will have the most impact.
That said, following are the most common operational and financial metrics that companies typically measure:
Common Operational Metrics
- Cost per Unit
- Revenue per Unit
- Units per FTE (full time equivalent)
- Staffing ratios
- Customer Satisfaction Rate
- Customer Retention Rate
- Error Rate
Common Financial Metrics:
- Gross profit margin by line of business
- Administrative Cost Ratio (admin costs/revenue)
- Days Sales Outstanding (AR/sales per day)
- Days Payables Outstanding (AP/sales per day)
- Days Working Capital ([AR + Inventory – AP]/sales per day)
- Sales per FTE (full time equivalent employees)
Question #2: What qualities should a CEO in growth mode possess?
I would love to write a book on this question because I think it’s something we in business circles don’t talk about nearly enough, and it’s endlessly fascinating to explore the mental and emotional aspects of strong leadership in achieving a big vision.
But for now, here’s my shortlist of the qualities any CEO serious about making a significant leap in their company’s profitability, sustainability and value should have:
The CEO in Growth Mode …
- Thinks big ($10M? Why note $50M?).
- Wants and demands an exceptional leadership team.
- Is willing to be the front person for the company – is visible and active.
- Is willing to delegate to and mentor the next level of managers; is willing to accept that the business should run without her.
- Is willing to make the tough decisions along the growth journey that need to made to take the business to the next level.
- Strives to build new relationships.
- Believes their time is best used on high-level strategy.
- Has a high-level finance person by their side.
- Predetermines Key Performance Indicators (KPIs) – a nod to the first question I wished more CEOs in growth mode asked.
Question #3: What is my exit plan?
You might be surprised by how many business owners launch and grow their companies over the course of decades without ever asking this question – even though the answer would directly and dramatically influence what a company’s growth plan should be.
This is often the very first question I ask my clients. After all, if I don’t know where they want to be personally at the end (and what “the end” really means to them), how can I possibly create the most effective growth strategy?
Do you want your business to be acquired by another company?
Do you want to sell a portion of your business to a private equity investor with the goal to leverage capital to grow faster, bigger?
Are you hoping to leave your company in the competent hands of the leadership team you carefully groomed while you serve as an advisor only, still taking a salary?
Would you like to leave your business to your kids? Does having a legacy matter?
The list goes on and I strongly suggest to any CEO who has not answered this most important question of all to vision the end NOW so that you can design or tweak your growth strategy to get you there – and on time.
You now know some of what goes on behind closed doors when I’m working with a CEO on taking his or her company to the next level. But, of course, this is only the tip of the iceberg.
There are countless questions that must be asked and answered to effectively, profitably and sustainably grow a business – and, most importantly, to do it in a way that significantly increases a company’s value.
If you’re a CEO in growth mode, what are your top 3 growth questions? And what’s the one question you wished you had asked, but didn’t?
I’d greatly enjoy hearing your response.
How ready is your company for significant growth?
Find out by downloading Time to Scale, our simple