Transition points

By Peter Charles

What is it that makes a fast growing business sustainable? Having worked with many businesses in different sectors and with all types of capital structures, we can honestly say that the answer is not obvious. What can be said with confidence is that the key to a company's continued success is its ability to recognise and respond to its Transition Point.

Case Story 1:

The Diversification Problem

Client: Private Equity Backed Uk Manufacturer

Problem: Was recommended by company auditors who had noticed cash headwinds.

Result: Armed with revised management information, the company was able to refinance before the financial crisis and regained their stability.

For example, when a business suddenly outgrows its processes, systems and ways of working, it must first recognise that moment and then decide how best to respond. If management jumps too quickly into new ways and new systems, it could throw a spanner into exactly what was working so well for them in the first place. In contrast, a business that is loath to adopt new ways will languish in its tried and trusted comfort zones, while its systems creak or, even worse, burst at the seams.

Hanging on too long to the old ways, jumping too quickly into new ways, or simply picking up the wrong ways, all run the risk of failure. Classic symptoms often appear as overtrading, borrowing too much, and setting sales and delivery targets that are way beyond what other functions in the organisation can support.

So how do you tread the path between lost opportunity and possible failure? A rule of thumb is that when business is going well and everything fits together, there is no need for outside support. Yet, if the business is running at top speed but not moving forward, experience matters.

Case Story 2:

Match the Board to the moment

Client: Privately held media company

Problem: The company was profitable but the Directors wanted to grow profits through the recession.

Result: By altering the way responsibilities were allocated, the directors were able to go with faster and more streamlined decision-making to achieve their objectives.

This is as true for an individual entrepreneur as it is for a board of directors. Successfully negotiating your way through a Transition Point usually takes a raft of incremental improvements. The challenge is to prioritise the sequence in which these improvements are introduced, and then to implement them - measuring the effect of each one as it comes on stream. It's also true that there is an optimal time and an optimal set of circumstances to plan and implement a Shared Services Centre, a more powerful ERP system or an improved invoicing module.

It is a balancing act: the secret is to recognise that you have reached a Transition Point and then to take measured steps. But another problem facing businesses when they reach aTransition Point is that they struggle to find good independent advice. Typically, they will be offered a plausible immediate solution; but often it is someone simply desperate to sell them something, or it is a corporate consultant more accustomed to working with the problems and solutions of big business.

Having worked with many companies in different sectors and with all types of capital structures, we know that there really are no readymade 'solutions'. Any business must be approached at its Transition Point with a set of questions, rather than a set of answers.

To listen to an audio recording of a discussion about Transition Points between Peter Charles and award winning Financial Journalist, Peter Williams, click here.

Also by Peter Charles