19 Aug Overcoming the “curse of growth” with horizontal and vertical benchmarking.
One of the forces of nature with which IT services executives contend, and why we’re often called upon to help out with growth strategies is what we call the “curse of growth”. It’s the realization, oftentimes a sudden one, that the strategies that got you from point A to point B will not be the same ones that get you from point B to point C.
We’ll ask executives with an ambitious growth imperative right off the bat; where are you now and where do you want to be in say 3, 5 years, or beyond? Most will have a pretty quick answer about the latter but the expressed goals are generally revenue-based. A $5MM company may want to get to $10MM, a $20MM company may aspire to $50MM, and a $50MM company looks longingly to $100MM. All well and good, but that about as far as they’ve considered the basis of their long-term objective, and what the company’s profile and makeup will have to be at those lofty perches.
Asking the $20MM executive, for example, where they are today in terms of basic metrics, such as margin, EBIDTA, they’ll rattle these figures off in a nanosecond. Then we’ll ask if they have any idea of what a $50MM company looks like in terms of key financial metrics, headcount, service line offerings, locations, etc. Many will fumble a bit and finally say they really haven’t delved that deep into their analysis. It’s our experience, and our recommendation, that knowing what a $50MM looks like will help the $20MM executive figure out the right strategies to get there.
To give IT services executives the ability to peer into the future, to get a glimpse of what their company may have to look like five years hence, Revenue Rocket is partnering with Service Leadership, Inc. Service Leadership, among other things, collects, analyzes and maintains the IT industry’s “most accurate, longest-running and widely-used financial and operational benchmark”. The company’s database is drawn from the records of thousands of companies across 10 different IT company profiles, e.g. Project Services, Managed Services, etc. with an inexhaustible litany of metrics.
With this partnership Revenue Rocket will be able to do what we call a horizontal and vertical benchmarking analysis. Horizontally, we’ll be able to determine where the $20 MM company presently sits relative to its peer group in terms of key metrics. Where it is Best-in-Class and where it is not. We’ll help determine if the company has the right foundation with which to embark on an aggressive growth plan? Vertically, we’ll be able to identify, broadly, what a company of their desired goal looks like at various revenue milestones. The strategies for getting the $20MM company to $35MM may well be different than the strategies employed to go from $35MM to $50MM.
Because the strategies may have to evolve over time, we recommend a portfolio-of-initiatives approach to managing your company’s growth. In our previous blog, A Portfolio-of-Initiatives approach to building your IT services firm, we referenced a McKinsey article in which the author
championed the idea that CEOs, “think about corporate strategy not as a portfolio-of-businesses, but as a portfolio-of-initiatives aimed at achieving favorable outcomes for the enterprise. Usually these initiatives will be organized around themes focused on achieving particular aspirations”. Key among them is creating a portfolio-of-initiatives that come to fruition over a period of time, such as:
Initiatives that contribute to current earnings; which we’ve categorized as organic growth, building upon your current source of revenue, your current core competency.
- Initiatives that mature in 2-3 years; think M&A, initiatives that will help you enter new geographies, new verticals, complimentary service lines, etc.
- Initiatives that mature in 3+ years; here we are venturing into new territory as we’re beginning to see IT services taking the next logical step to creating and selling their own IP.
So, the challenge, or the opportunity, for managing through the “curse of growth”, is to know where you stand horizontally among your peer set, know what your company will have to look like vertically at various revenue milestones, and then, and only then creating a portfolio-of-initiatives that will get you from point A to point B, Point C and all the points beyond.