Diagnosing 4 common causes of business growth slowdown

Driving a business from Smalltown to Mediumville is a bumpy ride. Dan Hall identifies four common causes of business growth slowdown that can put even the most brilliant plans for scaling a business into reverse. 

> READ THE RESEARCH:  How to navigate your growth challenges on the road to £1bn

Every successful business is intent not just on surviving, but on truly thriving into the future. Way into the future. This means generating long-term, sustainable business growth.

Evidence shows that companies which behave with a long-term mindset outperform the competition. Compared to other firms: revenue grows by 47 percent more on average, and with less volatility; earnings grow by 36 percent more on average; and economic profit grows by 81 percent more on average. 

For companies that successfully grow from small £50m businesses to medium-sized £1bn+ enterprises, the journey will be marked with periods of rapid and slow business growth. Some may even fall into decline, before powering forward again. Of course, there are many that stall entirely. 

Our research into sustainable growth at Cognosis has revealed the three most significant growth plateaus on the road to £1bn: 

• £75m - £125m in revenue 
• £350m - £450m in revenue 
• £650m - £750m in revenue 

Strategic priorities for growth problems

But knowing when to expect setbacks is one thing. Understanding what’s causing them is the key to avoiding trouble in the first place. (Or at least finding a way through as quickly as possible.)

Our analysis also explores the four most common underlying causes of stagnation or decline. We call these growing pains. 

1. Saturation - successful products or services reach their peak sooner than expected

The problem

Growth opportunities in your core market start to slow as you become dominant and headroom for business growth becomes limited. This can creep up on businesses far more quickly than they anticipate, leaving little time and space to adapt.

What are the early warning signs? High market share, slowing category growth, declining category margins and increased reliance on cost reduction to drive profit growth are all tell-tale markers that you could be about to hit a growth plateau.

Strategic priorities

• Future insight:  Put greater focus on understanding future trends and forecasts for both core and future categories.
• Identify future growth engines:  Define potential sources of future growth and their role relative to the core business.
• Resource allocation:  As cost pressures grow, be prepared to defend investment in future growth engines.
• Strategic communication:  Start communicating early, provide clear and compelling future narratives with careful management of stakeholders’ short-term expectations. 

2. Displacement - disruptive new competitors undermine market position

The problem

We have all seen examples of a new player, technology or trend that disrupts a market. This threat has become increasingly real with the rise of tech-enabled businesses. Your advantage can be eroded slowly or your whole business model might even be turned upside down in a matter of months.

The early warning signs are sometimes hard to spot. How do you look out for disruption if you do not know what it looks like? How do you know which of the myriad of start-ups will punch through and make real impact?

Strategic priorities

• Competitor insight:  Put greater focus on competitive intelligence and benchmarking (of both traditional competitors and disruptors).
• Scenario planning:  Use future scenarios to assess, mitigate and raise management awareness of emergent threats to the core business.
• Value proposition:  Review your value proposition, ensuring your differentiation vs competition is both clear and compelling.
• Loyalty and retention:  Prioritise loyalty and retention driving initiatives to retain existing customers as you evolve and adapt. 

3. Misfire - New acquisitions or innovations underperform growth expectations

The problem 

A key driver of long-term sustainable business growth is the ability to invest in new growth engines alongside your core business. However, this always carries risk – so it’s important to build a small portfolio of future growth bets as not all will fire.

The challenge is what to do when these investments misfire. Organisational confidence frequently erodes. Businesses retreat into their shell and refocus on the core business.

Strategic priorities

• Learning mindset:  Adopt a critical and honest attitude to learning why the misfire has happened and the root causes of poor performance.
• Decisive choices:  Act with speed, making decisions early to reset the course of the business.
• Resetting expectations:  Redefine management approach for bolt-on business areas, reflecting different expectations for return on investment.
• Refresh & review:  Regular reviews of short- and mid-term strategy to ensure strategic choices remain relevant through periods of change. Organise your strategic thoughts into a short and long mindset, working to a one-, five- and ten-year roadmap.

4. Complexity - Legacy processes, systems & capabilities are not future-proofed fast enough to fuel growth

The problem

Businesses can frequently become a victim of their own success. Rapid top-line business growth can lead to OPEX swelling and processes struggling to cope.

Essentially the current business model cannot cope. This can be a challenging place as the solutions often involve investment in new systems, technology and capacity – all of which are hard to switch on quickly.

Strategic priorities

• Structure and process:  Assessment of effectiveness and robustness of organisational design, including priority business processes.
• Prioritise activities:  Review and prioritisation of all current project activity with PMO / Change team including RACI for key processes.
• Benchmark costs:  Benchmarking of OPEX ratios across all functions.
• Control spend:  Tighten controls on new hires, non-core spend and new project initiation. 

Every executive will have experienced one, or a combination of, these growing pains. However, high performing executive teams can increase their chances of success by identifying the risk factors early and adapting their strategy accordingly.

When scaling the business, it clearly pays to diagnose the growing pains sooner and change behaviours in response.  Our research provides a star chart to help businesses navigate through the meteor showers to the open space on the other side.

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