The Budget is truly the fuel for Growth

If you are not a financial type person – I encourage you to seek not only professional advice but to become a numbers person. CEO, Founders or anyone in charge of growth needs to understand the numbers. If you presently are not part of the leadership team, and want to be at that table, learn your numbers. Feel comfortable with talking the language of business, money.

Having a strong foundation is the key to growth. Many companies move prematurely to a growth strategy. They look at growth at the savior to their financial woes. They will disguise cash-flow problems by growth. This, often time, is hidden by increased inventories that are rapidly obsoleting as you grow. The day of recognition will come when growth stops or slows down. If you have closed down a division or a company, you understand how much your inventory is worth. My rule thumb has always been; if there is dust on it, don’t count it.

Starbucks plans their growth in a unique way. When they open stores, they expect to take 25% of their business away from the adjacent store. This way they create cash flow and that famous line of people waiting to get a Starbucks. They were not developing new customers. They take existing customers and influence others with them. Think about Apple, did they take a certain portion of iPod users away with the iPhone, the same attributes were repeated with the iPad. All products contained an overlap of features and benefits making it a smooth transition between products for Apple, the customer and developer.

This type of growth can be viewed as a progression between the iPod and the development of an eco-system to support it. The next improvement was the iPhone followed by the less than spectacular iTouch, followed by the iPad. All of them were not exactly out-of-the box thinking. Rather, a continuous improvement effort (PDCA) that improved the entire Apple eco-system. They developed the products/services from the core. Apple, Starbucks and many other franchises are developed that way. It is one of the most inexpensive ways to fund growth.

Companies with good ROIC (Return on Investment Capital) typically develop products with high ROIC. It is imperative that you are making money with what you have before moving forward. We are always looking for the silver bullet in the next product, next market, but there is a high cost associated with taking market share away - others are firmly entrenched. How many times do you look at your existing product and think that another market can use it. It makes sense for them. What we forget is that the market is already being served by someone else and more than likely as you move away from your core your product or market, it is not as disruptive as you may think.

When you view most budgets they are almost always cost-related with little identification for resources that clearly set aside for growth. How do companies stop being innovative? Why do companies stop growing? Many simply stop planning and budgeting for it. The budget is truly the fuel for growth and innovation.