Creating a sustainable and predictable growth engine is critical to increasing revenues, profits, EBITDA (earnings before interest, taxes, depreciation, and amortization), and the corresponding multiple in a service business. Creating a successful engine is more than just an annual plan or an intriguing digital marketing strategy. To succeed in their marketplace, service businesses must shift their thinking to implement the appropriate combination of revenue growth planning, processes, and talent.
A critical management goal must be to understand the function of a growth plan in increasing performance. This 5-step approach will get any organization focused on the path to growth:
Many businesses are still struggling with the pandemic, and now is the best time to complete growth plans. Doing so will give any business a head start when the economy picks up again. According to the Boston Consulting Group, which looked at business performance following recessions, companies with strong post-recession plans outperformed their competitors by 15 percent. By taking advantage of a healthier economic tailwind, a solid post pandemic growth plan will help align the management team and accelerate progress. When the time comes, it will be a great opportunity to take more market share!
Since the introduction of Horizon Growth planning in the late 1990’s, service businesses which have successfully understood and adopted this multi-year approach to generation of new revenue and profit streams have realized the benefits of forward planning. Horizon Growth planning was introduced in a book titled The Alchemy of Growth: Practical Insights for Building the Enduring Enterprise by several McKinsey associates (Baghai, Coley, White). A Cliff Notes version of Horizon Growth planning can be found here.
The operational playbook for Horizon Growth has been successfully implemented with numerous investors and service businesses. The power of Horizon Growth planning has helped executive teams remove themselves from short-term thinking and introduced them to new ways of building revenue and profit streams.
Horizon Growth
The simplicity of the framework is both compelling and challenging. How exactly, does one go about identifying new revenue and profit opportunities, understand and profile them, compare them consistently, understand financial investments and returns, and develop them into solid business cases or plans? Plans that can be presented to the board or stakeholders to secure investments required to bring these opportunities from the idea or concept stage into real value-added contributors?
While implementing this playbook—with businesses ranging from $2 million in revenue to over $1 billion—there was a critical and obvious need to extend the model. That’s why Horizon 0 was added to precede Horizons 1, 2, and 3. The importance of Horizon 0 is that it fills an even more urgent need to “do the right things to help the business immediately.”
Within Horizon 0—typically a three to 12 month period—priorities often involve discussions relating to cost-reductions to preserve marketing dollars for higher value programs, investments in quick-to-execute operational improvements with short payback periods, and revenue-generating programs. These programs are identified in the 5-step growth process that can produce short-term results. In short, Horizon 0 generates cash for future growth investments.
Will your service business benefit from this approach? The decision to create a sustainable growth engine is yours.
Authors:
John Baglivo
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