How to grow your company with focus

If you have a good enough idea and a large enough market, you will have competitors. As these competitors will have the same core concept, you can logically deduce that it can’t be the quality of your idea that will bring you success.

First mover

It’s been well established that first-mover advantage is highly overrated and history is littered with successful second or later movers. Google wasn’t the first search engine, and Microsoft wasn’t the first GUI/Windows-based software. See this article on Last-Mover Advantage for more detail.

So if it isn’t your idea, then your execution is going to be the key factor in whether you become the number one or an also-ran. So what do we mean by ‘good execution’?

Aggregation of marginal gains

A very interesting approach is the one taken by David Brailsford (the coach for the British cycling team) who coined the expression “Aggregation of Marginal Gains”. This means you find a number of areas where you can be better than the competition and the accumulation of all those small advantages tips the balance in your favour. You can’t just hope that you will hit on one big idea that will defeat the competition, you need to be 1%-2% better in many areas: a classic “look after the pennies, and the pounds will look after themselves” approach.

Product innovations are very sexy but high risk: you may think you’re acquiring a competitive advantage with some new offering or feature, but you may not be. I’m not saying don’t try to innovate. By all means try new things, test if they work and keep them if they do. But don’t think you can just innovate your way to success.

Company processes

To benefit from the aggregation of marginal gains, look at your company’s processes and look for the areas where you can get these small improvements: can you provide incentives that get people to work a little bit harder, can you introduce more efficient work practices (time and especially email management for example) that gives your staff a little more time to get more done. Can you improve your recruitment – maybe by selling the company vision better in interviews, making the process shorter, sending a gift to people you want to offer a job to stand out from other offers they may be getting. This is just a short list, there will be lots of tiny improvements that will all stack up.

Often these improvements are not sexy and glamorous: they are about digging deep into the detail of how your business works. Bear in mind that the best place to look for ideas may not be your competitors. Look much further afield. The cycling team had the idea for heated shorts to keep athlete’s legs warm between races from F1 tyre warming kits.

Drucker says…

Another area where you can easily lose focus is your top-level targets. When you are starting out, you are highly unlikely to be profitable from the start and you and your investors (if you have them) will be looking for proxies for success such as user growth/client acquisition, revenue, or speed of hire. The problem is, as Peter Drucker says, what gets measured get managed. And that these proxies take on a life of their own and it’s hard to break free of their thrall.

It’s easy to believe your own hype about user growth, headcount increases and even revenue – but the core of a business that is going to be successful long term and will scale is that you have a profitable product with replicable customer acquisition. Some products, clients, or acquisition strategies can be unprofitable and scaling up based on those will mean you just grow from being a small, unprofitable company to being a large, unprofitable company and if your cash runs out, you will be in trouble. One of the key factors here is having a deep understanding of your business and what costs need to be allocated to customer acquisition, product lines and clients to get a clear visibility of profit. This is what you should be looking for from your Finance Director. If they are just producing budgets and cash flow statements, you are probably not getting enough value from them.

The reality is that despite the way it is often portrayed in the media, building a profitable business for the long term entails a lot of hard work and there aren’t many shortcuts.