10 years ago Jim Collins and a research team looked at almost 1,500 Fortune 500 companies to try and determine the characteristics that distinguished great companies from good ones. In the opinion of the research team less than 1% of the companies studied, 11 to be precise, made the cut to greatness. The findings were published in the book “Good to Great”.
The thesis, in summary, was that great companies possessed outstanding leaders and strong teams, making good decisions based on the right vision and strategy. They are entrepreneurial, disciplined, success oriented and driven; focused on one big, important thing. They adapt and endure and keep moving in the right direction. The companies studied were public, a world away from 99% of business owners and CEOs, but the principles apply nevertheless.
Greatness to some is not simply a matter of financial success and growth; the corner shop being just as important as the corporation. From a national economic perspective the ability of a country to employ people and contribute to the wealth of the nation is crucial. Does it matter how our national business sector is stratified?
In the UK almost 74% of enterprises are sole traders, i.e. they have no employees other than the principal or owner. Of those entities that do employ people (the remaining 26%) 21% employ fewer than 10 people, so-called micro businesses. These 2 categories (sole traders and micro businesses) account for 20% of value created (£ sales) and 31% of employment. The remaining 210,000 enterprises (5%) account for 80% of the value created and 69% of employment, or 16m people.
According to a report conducted in 2011 for the Dept for Business Innovation and Skills (BIS), “Research into Mid-Size Business Growth”, the growth performance of the mid-sized business (MSB) group is remarkably static. The reason that so few UK MSBs become large has long been a puzzle, one that government of various shades and their respective policy wonks are keen to solve, especially with unemployment currently at 2.6m.
The report suggests companies that achieve growth in sales, profits and employment were in buoyant sectors, actively exporting to growing markets and large enough to compete robustly with fewer competitors. Access to external finance is not an obstacle, consequently they were generally active in M&A and capital investment. Money follows success.
Underachievers were generally characterised by moderate growth aspirations, steady performance and prudent financial management. They face strong competition, market constraints, increasing input costs and tightening operating margins. They needed to invest in improved management, operating systems and market repositioning.
There is no silver bullet to move from Micro to MSB to Large business. It’s about getting many things right, the primary one being success with customer acquisition and retention.
One new initiative, sponsored by Goldman Sachs Foundation, is attempting to accelerate chances of success for this group. The programme, “10,000 Small Businesses” is designed to unlock the economic and job creation potential of 10,000 UK SMEs (and social enterprises) who have clear ambitions to expand. The goal is to provide them with tools and resources to boost them to become MSB’s, to lay the foundation for sustainable growth and job creation in their communities.
If you’re reading this as a micro business owner or SME MD you might like to reflect on these 10 questions:
- Is my company performance static or flat lining?
- Am I operating in a market that can sustain growth?
- Have I got the right business model and strategy?
- Are my customer acquisition and retention policies working well?
- Has the internet passed by me?
- Have I got good people around me?
- Have I got the systems, structures and procedures to take the business forward to the next level?
- Do I understand the constraints that are preventing my growth?
- Do I have plans in place to address these constraints?
- Do I have the ambition to grow? Really, do you?