Page 47 - (DK) The Business Book

START SMALL, THINK BIG 45 45

See also: Managing risk 40–41 ■ Luck (and how to get lucky) 42 ■ The Greiner curve 58–61 ■ Hubris and nemesis 100–03
■ Profit versus cash flow 152–53 ■ Small is beautiful 172–77 ■ The MABA matrix 192–93

as the self-financeable growth Each of these “levers” helps to
rate (SFG), it helps managers to generate the cash needed to fuel
strike the right balance between faster growth.
consuming and generating cash. As a young start-up business,
It does this by measuring three the fashion brand Superdry enjoyed
things: the amount of time a phenomenal growth. From its
company’s money is tied up in inception in the UK in 2004, the
inventory before the company has company rapidly added new stores
paid for its goods or services; the throughout the world. In 2012,
amount of money needed to finance however, after several profit
each dollar of sales; and the amount warnings, it became clear that
of cash that is generated by each Superdry had become a victim of
dollar of sales. its own success. Critics suggested
that the brand was so focused on
Sustainable growth growth that it had forgotten its
When accurately applied, the fashion roots, failing to update The fate of the exploding Helix
SFG formula determines the rate products on a seasonal basis. Other Nebula resembles the decline of a
at which a company can sustain reasons for the decline included company that has expanded too rapidly:
after using up all its energy resources,
growth through only the revenues supply issues, accounting mistakes,
the star collapses on itself and dies.
it generates—without needing to and an inability to react quickly
approach external funding agencies enough to fierce competition. In
for more cash. Essentially, it a tacit acknowledgement that processes and people, eventually
predicts a sustainable growth rate excessive growth was to blame, the destroying its value and even
and helps to avoid overtrading. company announced plans to leading the company to grow
When a market is growing faster review its new store openings. and die.” Growth is not a strategy,
than a company’s SFG, Churchill Business-growth expert Edward he claims, but a complex change
and Mullins identified three ways Hess suggests that growth can add process, which requires the right
for managers to exploit the growth value to a company, but if it is not mindset, the right procedures,
opportunity: speed up cash flow; properly managed, it can “stress a experimentation, and an enabling
reduce costs; or raise prices. business’s culture, controls, environment. ■

Edward Hess always linear. Contrary to the
dictum that companies must
A graduate of the universities of “grow or die,” he suggests that
Florida, Virginia, and New York, they are likely to “grow and die.”
Edward Hess has been teaching Hess is the author of ten
A profitable company
and working in the world of books and more than 100
that tries to grow too business for more than 30 years. practitioner articles and case
fast can run out of cash— He began his career at the oil studies. He is currently professor
even if its products are company Atlantic Richfield of business administration at
great successes. Company, and later became the University of Virginia, US.
Neil Churchill and a senior executive at several
John Mullins other leading US organizations, Key works
including Arthur Andersen.
Hess specializes in business 2006 The Search for Organic
growth, and especially in Growth
debunking the “myths” that 2010 Smart Growth
growth is always good and 2012 Grow to Greatness