It may be stating the obvious, but companies need to be reminded that customers determine company’s success. “It’s simple really,” says Thomson. “Companies must grow their sales and revenue to be growth company.”
Thomson didn’t originally think this personal discovery was “big” insight. But after travelling the world for the past six years and presenting his thoughts on what underpins growth to 25,000 listeners, he’s now considered global expert on how businesses grow. And he thinks the world’s successful growth companies – like Apple, Microsoft, Starbucks and the like – are “defined first and foremost by sales”.
Super sales of Thomson’s 2006 book, Blueprint to billion: Seven essentials to achieve exponential growth, undoubtedly defined the growth of his reputational success. He followed it up last year with another good seller, Mastering the 7 essentials of high growth companies.
The former McKinsey & Company consultant is now the founder and chairman of The Blueprint Growth Institute, specialised management-consulting firm focused on helping companies develop business growth strategies. He was in New Zealand to speak at an internal staff conference for boutique telco and media business Kordia.
Managers, says Thomson, invariably understand his sales and growth message. Boards often don’t, mainly because they are stacked with the wrong mix of “essential experts”. Boards should, he says, include customers and key alliance partners.
Growth’s important
Why is exponential growth important? It’s all about what Thomson calls “the law of disproportionate impact”. Only four percent, or 387, of the 11,000 plus companies that have gone public since 1980 reached $1 billion in revenue. Those star, or what Thomson calls blueprint businesses, account for 63 percent of the employment and two thirds of the market value and 72 percent of the taxes paid of all those new public companies. “That’s why we must improve our hit rate and get more companies into up there,” he adds.
“Growth companies are great places to work and invest in. They also have disproportionate positive impact on government tax revenue. For economies to grow, countries need more growth companies. And investors need growth companies to provide long-term superior returns to fund their retirement.”
The world, according to Thomson, is awash with entrepreneurs and small businesses. By extrapolation, government business promotion policies and schemes are misdirected. “Americans believe that small businesses create the most jobs. But one $1 billion business is equal to 1000 small businesses when it comes to creating jobs,” he says. New Zealand should, therefore, be considering how to turn many of its small companies into one or two more billion-dollar businesses.
“My thesis is simple. The world is saturated with entrepreneurs and incubators. Incubators don’t solve employment problems and won’t help the world economy. What makes difference to communities and economics is finding ways to grow business revenues.”
In Thomson’s opinion, development programmes should be directed toward enhancing business success rates, rather than setting up more incubators. The odds of turning $1-billion idea into $1-billion revenue business are, he said, “worse than the chances of hitting hole-in-one in round of golf”.
Beating the odds
In America the odds of getting an idea funded are 50:1 and about 20:1 to get funded business to go public. It is another 20:1 in odds to turn public company into $1-billion enterprise. Thomson has no ideas what the odds are for private and family companies, but chances are the statistics are similar or worse.
According to Thomson, countries and companies he talks to are re-thinking their business development strategies. Effective leaders view their economies and their businesses as systems. “Systems thinkers look ahead,” says Thomson.
“Governments need strategic imperatives that fire on every cylinder. Too often they think about one thing only. In the US it’s about tax cuts or infrastructure spending. They need to think about opening markets.”
Thomson believes health services, energy, minerals, cloud computing, social media and mobile device convergence offer the best opportunities on which to build growth companies. Agri-business looks good for New Zealand – witness Fonterra.
Five mega trends will, he says, dominate growth economies. They are:
• Materials – mining products but also in future, water;
• Energy – oil and gas exploration and clean energy;
• Technology and communication convergence – cloud computing and mobile products;
• Food staples – the need for which will not disappear;
• Retailing – concepts and models of which are rapidly changing.
Thomson’s research uncovered the seven essentials he believes are both common and critical to successful growth companies. And the extent to which businesses adopt some or all of these essentials defines the growth rates they achieve. “A car engine provides good analogy,” he said. “To make an engine run smoothly and with maximum power, spark is required in every cylinder.”
His seven essentials include creating and sustaining breakthrough value proposition; exploiting high-growth market segments; securing marquee customers early to fuel exponential revenue growth; building alliances with larger companies to help break into new markets; mastering the exponential returns equation (fast and sustained revenue growth, and high return on invested capital); building what he calls an “inside-outside” management team and including customers, partners and growth-focused chief executive on the board.
The first three of these essentials are core. No business will grow without them. His inside-outside approach to leadership is, however, also critical. “One [leader] needs to focus on operations and innovations while the other faces outside, focusing on customers, alliances and the community,” says Thomson. “The principle of inside-outside leadership should be applied throughout the organisation.”
Founders played critical role in the “growth” companies Thomson studied, but the CEO-founder didn’t do it all. “The founders needed to transition to the inside-outside leadership pair to execute all seven essentials simultaneously. Before Microsoft’s Bill Gates/Steve Ballmer duo of the 1990s, the company reached an inflection point in 1983,” he told The New York Times in 2006. “It outgrew its small-time style faster than Gates could handle it. Gates tried to take charge of five product lines, but he couldn’t pay enough attention to customers’ needs.”
Companies don’t, however, fail because one factor is missing. “Cars can run on five rather than six cylinders,” he said. “But when three or four cylinders don’t fire, the car stalls.” Poor governance can have profound effect but it is, he said, usually just symptomatic of failed investor policies, failed leadership or company without good value proposition such that no one of any value wants to join the board.
Board failure
The most common problem with governance is, in his opinion, board failure to recognise the strategic imperatives of what is required to grow business. “Growing companies fire on all cylinders. But is takes systems approach to accomplish that. Boards fail when they don’t take systems approach and neglect some aspects of an exponential growth pattern. Talking about linear, erratic or low growth means they aren’t thinking of the seven essentials in the same way.”
Thinking in terms of $1 billion might, Thomson concedes, take some mind expanding for New Zealand companies. But, he says, if company can grow at 30 percent and reach $50 million in revenue it should be able to get to billion in 10 years. The rate slows as companies reach “escape velocity” but there is, he says, no reason why New Zealand businesses g
