3 Steps to Achieve Profitable Growth

I never ceased to be amazed at how fast time seems to run right by us. Here we are in the second week of December and soon another year will be gone. Over the last four weeks as I’ve talked to a variety of entrepreneurs – it seems like they just got started and now already they’ve been in business for 4-5 years. Where did the time go, I find myself wondering. I’m not always sure that they wonder about it!

More importantly as some of them struggle for consistent growth and profitability, I find our conversations veering towards figuring out what’s working for them. In these conversations, I find myself repeatedly asking three or four questions

  • What is a typical deal size for you?
  • How long a selling cycle do you have – between first contact and first payment or purchase order
  • How many of these are repeat customers?
  • With which of these customers are you actually making money?

The funny thing is despite age or relative success of the business or experience of the entrepreneur this data is not that handy usually in most startups that I meet. It’s when they encounter a bump or worse yet a wall, they seek help and often the answers lie within such data. Of course sometimes it does not, but we’d know that only after we look at the data. Three things that are worth doing are

Analysis framework Build yourself a simple revenue and profit analysis framework – this could be simply a spreadsheet, like a sales tracker, but instead of forecast it shows what transpired. Ideally you would cover revenue, sales cycle, gross margin by account or customer (outside-in) and by-product or service offering (inside-out) and if you have a large enough team, even by salesperson. Depending on the nature of your business this could over a weekly, monthly, or quarterly period. Even if you review only on a half-yearly or annual basis, having the breakdown at least at a monthly level, helps.

Periodic reviews Any data and analysis is not of much use, unless you periodically review it. I’d include as many senior folks (if not your entire team) in such a review. The goal of the review is to really understand, which customers and products actually make profits for you – how long it took you to acquire them and why they’ve stayed with you or given you repeat orders. Alternately it will tell you if you are NOT getting repeat orders or those repeat orders are NOT coming fast enough or at better margins. Including the larger team, allows you to do find bottlenecks and assumptions within your own team – why proposals or demos take longer than they need to (selling cycle), costs are higher (team tries to get one customer to pay for entire dev cost etc.) Also it reminds the team that business is about making profits, not just shipping products (or proposals) alone.

Action plan Three critical actions can come out of such reviews

  • identifying what worked and doing more of this. Could include up selling to existing customers, culling non-profitable ones, tracking and shortening lead-to-customer conversion cycle times
  • designing experiments to validate things that are unclear – did that email campaign work, did pricing make a difference, what worked for one account or sales person can it be used for others – this helps find what worked (and what didn’t)
  • modifying your analysis framework do you continue to measure what you are presently measuring? What do you remove? What do you add, so that the analysis framework -> periodic review – > action plan cycle serves your purpose of profitable growth.

As December winds down and a new calendar and fiscal year loom, this might be a good time to look at this.

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