10 September 2013
The recovery is here!
What two things should leaders be doing right now?
The markets are moving again. Over the summer, the economic clock has been at 8.30 – halfway through the “hesitant and uneven recovery” phase. A simple way to judge recovery is to look for cranes. A recent scan of the London skyline revealed over 100 cranes. The Deloitte Crane Survey tells us this is the highest activity in four years.
But what does this simple observation mean? Money is starting to flow again. It's an early sign that the market is moving. Seasoned entrepreneurs at UK-wide Shirlaws Business Coaching explain what leaders should do to take advantage of this development.
1. Invest in assets
This is a critical time to invest in assets that will produce income. Massive amounts of market share tend to change hands at this point in the cycle. The mindset of investment: income follows assets
The principle of “income follows assets” is a state of mind. Many leaders conceptually understand the idea. But their business psyche says, “Once I’ve made a little more money, then I’ll invest.”
It’s understandable to feel we must restore revenue before investing. But we must invest first to make money later. For instance, you must own a house before you can rent it out. If rent equates to dividend in a business, then you must own assets before they can generate profit. Invest… in what? The focus should be on broader business assets (like intellectual property, culture, talent and ownership of markets and channels) as opposed to physical assets (like machinery and premises).
One key area of investment is recruitment. New people usually take 12 to 18 months to embed into a business, so don’t wait until you’re fishing in the same talent pool as other businesses. Timing is crucial Take action now because those who invest early will reap the rewards. In two years’ time economic recovery will be more obvious. By then it will be too late to capture the market gains available.
2. Get the right people doing the right jobs
Leaders need to build a platform now to capitalise on the uplift as early as possible. This means having the right number of people doing the right jobs with the right level of skills.
The “right job” plays to what we call “Red-Blue-Black” activities – this is the way our coaches categorise a business’s functional structure.
Red: back office tasks, including IT, legal and HR.
Blue: revenue generation, including sales, delivery and operations. In a factory it’s people working on machines. In a marketing agency it’s people designing advertisements. Blue tasks include anything that helps generate a client invoice.
Black: “next year’s growth’“ including strategic projects that won’t impact this year’s profit but will create growth in the future, like R&D, joint ventures or new products.
Getting the ratios right Calculate how much time your people are spending on red, blue and black activities to produce total Red-Blue-Black ratios. These ratios dictate how much profit the business will make.
You need precisely the right percentages for your size of business. Too much red means excessive back office infrastructure. You won’t make enough profit. Too much black means too few people generating revenue for this year. You’ll run out of cash.
During a recession, business owners typically get dragged out of black activity and into red - talking to the bank about overdrafts, chasing debtors, managing people out of the business and handling client complaints. Generating growth in the recovery means leaders getting out of red into blue with some black.
Leaders who find time to do some black activity will innovate and discover niches - and as a result, see growth.
The owners putting the larger balance of their time into blue activity (increasing conversation and securing bigger deals) will keep the cash coming in.
Redefine your Red-Blue-Black ratios to maximise productivity and also create future growth. This will secure the cash to access the future growth you have designed.
To learn more about Shirlaws Business Coaching visit www.shirlawscoaching.co.uk