Good growth: the interconnection between shareholder and stakeholder value, where social, economic and environmental factors combine to create sustainable change.

In a world where acting purposefully matters, businesses need to demonstrate that they can grow in the right way at the right pace. It’s not just about good intentions. It’s about delivering positive outcomes while achieving sustainable, long-term growth. In the current economic climate, striking the balance between profits and purpose is challenging, but it’s a challenge worth facing.

At BGF, the five principles of ‘good growth’ are: lead well, grow sustainably, take thoughtful steps, keep broad minds, go further together. Each plays its part. But how does this translate into the day-to-day?

Leadership

Strong leadership is essential to any successful business. Good leaders set the tone; if they are consistent in their approach, build trust amongst all stakeholders, and have the ability to guide and inspire, the rest will follow. Accepting that you might not get it right every time is part of the process, but striving to get the best out of everyone will ease the way for good growth.

Structure

As with any form of growth, there needs to be a transparent strategy in place – a framework that allows for thoughtful governance and sustainable growth. This includes defining and communicating what your values, mission and vision are for the business. They will form the bedrock of any organisation, the fabric of a business that provides everyone with the guiding principles in which to deliver good growth.

Be open minded

Never be afraid to take a different path to the tried and tested route. Creating change is not easy, particularly if you’re doing something for the very first time, but by embracing change and gaining buy-in from everyone invested in going on that journey with you, opportunities will present themselves.

Collaboration

In order to scale and grow responsibly, collaboration is key. Achieving good growth is a collective effort and requires insight and inspiration from a wealth of sources. This includes non-executive directors – people who bring a different perspective, a positive influence; individuals who are dedicated to entrepreneurial growth and value creation.

The ‘Why’

Good growth is much more than numbers on a spreadsheet. You must have a clear sense of purpose; you must define what impact you want to create. Yes, you need to have a watchful eye on cost controls, operational efficiencies, and financial results, but without looking beyond those and understanding why you do what you do, you’ll struggle to align the social, economic, and environmental factors that are needed to create lasting change.

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Growing the right way

“A company is people.” That statement is one of many made by Richard Branson during his career that has placed employees front and centre.

He, like many serial entrepreneurs, believes that people are the greatest asset of any business and, in order to scale and execute an ambitious growth strategy, you need to create a strong and loyal workforce that buys into that vision.

Given the success he has had in amassing a multi-billion-pound fortune, it’s hard to argue with his approach. The truth is people are hugely important when it comes to achieving business success. What’s more, with a war on talent being played out across a multitude of sectors, finding the right people to navigate that growth journey is an increasingly important task.

At the helm of any fast-growth business is a management team. Their job is not only to realise the company’s growth ambitions, but to instil confidence and drive in each and every employee.

Building a strong management team, both for the present and the future, is vital to the success of any aspiring business, particularly if you want to ensure “a company is people”. But how do you go about creating a high performing management team?

Identify the key qualities needed in your team

It’s important to understand each element of growth and identify the key qualities needed to achieve success. Look around the management team and assess who can bring their skills and experiences to each element, be that international expansion, identifying, making and integrating acquisitions, or targeting larger customers and order values.

It’s extremely common to have gaps in skill sets and experiences. As such, a diverse group, with a wide range of skills that can all come together to deliver the plan, makes for a strong management team.

Get the recruitment process right

Before commencing any interview process, summarise what is great about working in your company. What is your employee value proposition? Why should anyone join your company? High calibre candidates who could have the most impact in your business are likely to have a number of options available to them, so you’ll need to convey an appealing proposition to secure their services. This is particularly so for smaller, emerging brands that may not be able to offer some of the benefits of more established companies. However, while they may have less scale, what they can offer is the chance to have a wider involvement and impact across the business, the potential for increased responsibility and flexibility, and the chance to work in a dynamic  company with the potential for real growth.

Keep an eye on the future

The biggest mistake businesses make is recruiting for today, rather than recruiting for the future. When looking for senior leaders, consider what the business is going to look like in two to three years’ time. There is little point in recruiting someone who is perfect for the business as it is today, but will not be able to deliver a similar impact when the business has grown, is larger, offers extended product ranges, or sells to different customers.

Recruiting someone who has done the scale up journey, and who can contribute both now and through the next few years will be a real advantage. Yes, it will be slightly more expensive, but you won’t have the cost and time implications of re-recruiting in 12 months or less, and you’ll have a valuable senior colleague throughout the next phase of growth.

Move with the times

Leadership continues to evolve – driven by the demands and desires of a changing workforce, new technologies, and economic and political change. Leaders must then have the ability to lead through those challenges and uncertainty, while drawing on the skills, knowledge and abilities in their team, by creating an environment of innovation and collaboration.

Increasingly, employees are also looking for workplaces and leaders who are mission-based and purpose-driven. A successful management team must have the skills to flex and react to the changing demands of employees and be true to the vision and values set out by the business.

As people are the bedrock of success for just about every company, a strong management team (without exception) must have strong people skills and an ability to inspire and lead. Investing time and commitment is therefore invaluable to ensure everyone’s leadership and coaching skills are fit for purpose and that there is a consistent understanding and appreciation of what behaviours are expected and what high performance looks like.

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Building a management team – why people are the key to success

Growth: the act or process, or manner of growing. In business, that act or process of increasing in size, revenue, market share, or profitability is vital – particularly in the current economic climate, which is testing the resolve of even the strongest businesses.

There are various types of business growth, including organic, when a company creates the right conditions for expansion; strategic, which focuses on long-term growth through specific initiatives; as well as through acquisitions.

The latter is often referred to as ‘buy and build’ – a concept that sounds straightforward in nature. You acquire a company and, with it, increase your value and grow the business. Easy, right?

Yes, it can be a highly effective way of reaching your strategic objectives in a relatively short amount of time, but it’s not always an easy investment thesis to get right. Each business you buy has a different culture and geographical spread, therefore, the transition of two becoming one requires time and careful consideration. You have to work hard to integrate what you’ve bought.

However, when executed correctly, buy and build can help to accelerate growth – whether that’s adding complementary products, services or skills to your proposition, expanding your geographical footprint, opening the door to new markets, or deepening your sector presence. Typically, it can deliver the sort of growth that could take three to five years to achieve organically.

So, what do businesses need to consider when going down the route of buy and build as part of an overall expansion strategy?

Organic comes first

For buy and build to be successful, it should also complement an organic growth strategy. Without the right foundations in place, a buy and build plan is less likely to succeed. Businesses at their root need to be well-managed, well-capitalised and already delivering strong organic growth. As such, focus on the fundamentals and the rest will come.

Planning and strategy

Making the right buying decisions, at the right price, takes planning. Having an appetite for growth is one thing, but unless you create a road map and bring the future into the present, then your desire to accelerate growth is likely to fail. Be very clear what your objectives are from the beginning and what’s important to you as an individual and for the company. Emphasis should be placed on establishing a value proposition, understanding how defensible you are in the wider market, and the key opportunities and risk facing the business.

Funding ambition

Raising finance to fund your vision is a critical step in the process of buy and build. Funding options vary from business loans to debt finance, private equity and even crowdfunding. Whatever route you choose, finding the most suitable investor who fits with the culture and strategic aims of the business is hugely important. At the core of raising finance is building a relationship with your investor. Make sure they understand what your business stands for and equally that they want to safeguard it. At the same time, consider their approach and if that fits with yours – whether that’s hands off, when needed, one that’s supportive in nature, or one that’s more entrenched in your business. Trust is key.

Hitting the right target

When sourcing potential acquisition targets, it’s essential to carry out thorough due diligence to ensure there are no unexpected problems or unforeseen liabilities down the track. This includes making sure you request full disclosure on all financial and operational aspects of the business you are looking to acquire. Ultimately, when integrating an acquired company, you want to achieve sales and costs synergies that will support future growth, so it’s essential you do your homework so you don’t get saddled with a company that drains you of both time and money.

Market potential

A buy and build strategy will only be a success in a market where there’s space for consolidation. If your target market has experienced rapid consolidation in recent years, with large well-established participants buying up smaller companies and rivals, it can make it more difficult for new entrants to grow by acquisition and build a business of scale.

Timing is everything

Knowing when the time is right is crucial. Is your business at that ‘step-change’ moment? Has it achieved sufficient scale and is trading in such a way that it provides enough width and depth to allow a management team to accelerate growth? It’s easy to underestimate the management bandwidth required to scale a business at pace. Does your strategy require a dedicated integration team? Are there enough middle managers to handle each newly acquired site or business? And does the senior management team have the capacity to execute a seamless acquisition plan while continuing to run the business day to day? If you get your timings wrong, there’s a danger that you won’t have the right team or processes in place to achieve your aims.

There’s no doubt that buy and build is an effective method for ambitious, entrepreneurial businesses looking to scale up – and scale up quickly. Yes, it only works when the opposing parts fit together and complement one another. But, in a short space of time, you can achieve scale through careful and strategic additions. What’s more, the last few years of economic uncertainty have done little to dampen the intent of businesses. Why? Because innovative businesses that take a more risk-welcoming approach, choosing to embrace growth in the face of adversity, are the ones that have and will continue to flourish.

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Building a business through acquisition

Growth in the current climate is no mean feat, but given the right mindset and approach, there are still plenty of opportunities to be had, particularly for those businesses operating in sectors that have remained relatively robust throughout the economic cycle.

If you’re at the start of your growth journey, how do you ensure that your strategy is fit for purpose? And what are the key ingredients you need to making sure it’s a success?

Roadmap

Having a clear and compelling roadmap to scale a business is a vital part of achieving growth ambitions. The plan can be far-reaching, but it must also be realistic. Revenues will never grow in isolation. With growth comes increased overheads and businesses need to factor this into any growth strategy.

Team

Being ambitious and having an exciting growth plan is one thing, but companies need to ensure they have the people in place who have the skills needed to turn ambitions into reality.

It’s important that the management team is a strong working unit made up of complementary skillsets that work in tandem with one another – an ambitious CEO who is tempered by a CFO who brings a dose of practical realism is a perfect combination for a business with a clear set of objectives. Knowing a business’ strengths and weaknesses is also a crucial part of success. Don’t work in isolation; be open and willing to receive input from external parties to help improve the business.

Success not only rests on the shoulders of the senior team, but also in the wider workforce. Retaining the brightest minds is an ongoing challenge – one that goes beyond salaries and fancy perks. Creating a culture of collaboration, accountability and ownership, as well as ambition at all levels, can help to breed success – particularly if it’s married with the right level of support and training. If a business is merely paying lip service to these elements, it will be evident in staff turnover rates and business performance.

Getting the fundamentals right

The key is to do what you do extremely well – whether it’s run of the mill, or breaking boundaries. That means having streamlined and effective operations, with a focus on the basics that customers expect, but which many businesses fail to deliver. For example, focusing on high quality products, reasonable lead times, and superb customer service.

Market potential

The market a business operates in doesn’t have to be enormous, but it does need to be big enough to allow the company to reach its goals without having to own the entire market. If a business is able to physically open up in other geographies, then that will naturally open up the market and create opportunities. If a business believes that international growth is part of its plan, it needs to be able to demonstrate how it will plug into new territories and what the supply chain set up will look like.

In our experience, one of the main drivers of value in a business is scalability, and to scale well, you need an addressable market. As a rule of thumb, a new entrant will do well to capture 5% of its total market in five years. As such, it’s important to be realistic with assumptions; research the regions and factor in any extra operating costs.

Loyal customers

A successful business is one that attracts sticky customers who come back again and again, generating repeat revenue at good margins. When it comes to consumer-facing businesses, to measure a company’s performance we estimate the average lifetime value of each customer and divide it by what it costs to acquire that customer. This metric is one of the most important indicators for a business of that kind.

Commercial edge

To really grow in a competitive marketplace, businesses need to possess hard-nosed commercial acumen. How well are customers and competitors understood? Do the financials stack up? What are the key performance indicators? Innovation and ambition need to be underpinned by good old-fashioned commercial sense and financial planning.

What’s more, it’s essential that a good management team has a firm grasp of the business model, plans ahead for potential cost increases and other difficulties, and still delivers the right level of profit. A business that consistently delivers a gross margin of between 20-30% is well-managed and clearly knows what it is doing, especially in a turbulent market, or over a sustained period.

Good data

It’s crucial when a business is putting together a growth strategy and successfully executing one, that it gathers accurate insights about the business’ performance and customers, so it can easily identify and respond to any problems before they escalate. The best run businesses will have embedded systems and reporting tools that allow management to view data in real time. Becoming a data-rich business that has robust information at its fingertips ensures the team can maximise profitability and meet growth ambitions for the benefit of all stakeholders.

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Growth strategies: finding the right ingredients to achieve business ambitions

All businesses currently face a challenging economic environment, and growth businesses are no different. Fuelling the UK’s growth economy, these dynamic businesses are perfectly positioned to seize opportunities and manage challenges ahead in a measured way.

However, ambition alone is not sufficient. Like any company looking to scale, innovative and entrepreneurial companies must be well prepared regardless of their market segment, with robust business models in place and compelling growth prospects. Many businesses turn to external investors to provide the funding, experience and expertise needed to help them overcome financial and operational challenges and realise their ambitions.

Investors are often well positioned to continue investing throughout the economic cycle, forming long-term partnerships with companies and supporting them over time as they grow, providing consistency and continuity despite the challenging backdrop.

With the investment climate proving more challenging, and investors understandably scrutinising every last detail of a deal, it’s essential that growing and ambitious businesses are ready to approach the market with every I dotted and every T crossed.

Securing investment for the next stage of a business’ growth takes preparation and, the truth is, few are investor-ready from the outset.

The first step is to consider what investors look for in a business. Generally, they want a  strong management team, good financial performance and a well-thought-out growth plan, among other things.

Businesses typically seek investment to finance growth through expansion, which may include research and development into new propositions, new plant and equipment, hiring people or to finance the costs of launching in a new market. Alternatively, the investment may be required to fund growth using a buy-and-build acquisition strategy.

Whatever the motivation, there are a number of key things to consider when preparing for investment:

Growth plans

Whatever a business’ growth strategy, it should be underpinned by a detailed step-by-step plan, which should be supported by as much evidence as possible. Many companies struggle to articulate what their business’ USP is and how they will scale to the next level. Easy access to management information and business data is also vital in proving the case for funding, as is the ability to refine your business and set KPIs that will help to drive business growth.

People

An investment is a relationship, and relationships depend upon people. A robust growth plan should identify the leadership, technical and professional skills of the top team. Investors must have confidence that a business has the right people to deliver their growth plan. After all, people are the bedrock of success for just about every company, and a strong management team (without exception) must all have the ability to inspire and lead.

Credible financial plan

The due diligence stage of the investment process is crucial for determining success or failure. If financial accounts and supporting analysis are in the wrong format, insufficiently detailed, or in any way non-compliant with legislation, no one will want to invest.

Good data

Gathering accurate insights about a business’ performance is critical to easily identify and respond to any problems before the damage is done. The best companies will have embedded systems and reporting tools that allow management to view financial data and in real time. Another benefit of having robust data at your fingertips is in helping to maximise profitability.

A sustainable proposition

Business models based on short-term trends and crazes, will often enjoy short-term success but risk stagnating as interest wanes over time, or excess supply comes into the market. Investors will look to invest in strong concepts with proven longevity, to ensure customers will come back time and time again.

Scale

It’s one thing to find a couple of good sites and operate them well, it’s another to replicate that success at scale. If you’re a growing multi-site business you need to have appropriate team structures in place, allowing decision making and responsibilities to be delegated. It also needs fit-for-purpose back-office systems and software. This can become challenging the further you move away from your heartland. Another key point on multi-site businesses is ensuring you can demonstrate short payback periods and return on capital. When a business is expanding, investors want to see that each new site recoups its set-up costs within two to three years. If it takes longer, an investor will question whether the business model is viable in the long term.

The right investor

There are many investors on the market. Some have specific expertise in market sectors, some are generalists; some are known for seeking returns in a short timeframe, others are more long-term in nature. Businesses should aim to engage with those that are a good fit for their business – alignment around goals is key.

Timing

If everything falls into place and is aligned, a small number of nimble and well-managed businesses are able to achieve investor-readiness in a few months. However, a timeframe of at least three to six months is more common, possibly up to 12 or more if a business has a lot of work to do.

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Ready to grow? How to get in shape for investment