Cars, not horses: Creating a sustainable growth advantage

Realizing growth is a challenge for all entrepreneurs who dream of creating and scaling their startups into tomorrow’s multinational corporations. However, early successes in the fast-paced initial phase of development do not necessarily guarantee an enduring competitive advantage and business sustainability. What then sets apart market-leading entrepreneurs from those who failed?

In Daring to Compete, a new EY book exploring studies based on interactions with winning entrepreneurs of the EY Entrepreneur of the Year program, it was established that despite their differences in size and industry, leading entrepreneurs share a disciplined framework for growth.

Such a framework helps companies align their capabilities with their growth strategies and find gaps by focusing on the seven drivers of growth: customer, people, behavior and culture, technology, operations, transactions and alliances, finance and funding, and risk. This framework, which the book identified as the EY 7 Drivers of Growth, discovers what all businesses will need to manage and evolve as they progress through their various stages of development.

PRIORITIZING CUSTOMER-FOCUSED DIGITAL TRANSFORMATION
Most companies service their customers directly in the early stages of business, equipping them with the ability to build direct relationships. However, competing operational priorities can easily cause a business to lose focus on its customers.

Successful entrepreneurs know that to become market leaders, they must not only meet their customers’ expectations – they must exceed them. It should be noted, however, that this does not always mean giving the customer what they want, such as the case with Henry Ford. The father of the automobile industry famously said that if he’d asked what his customers wanted, they would have asked for faster horses. By finding an alternative perspective of the customer’s needs and wants, a company can disrupt the market, and create a truly sustainable advantage.

Moreover, by challenging traditional business models and continuously raising the bar, today’s companies are bound to seek digital innovation. Evolving businesses do not initiate digital transformation out of a simple interest in technology; they do so to focus on customer agility and business change. Digital technologies such as data analytics allow them to make faster, smarter decisions to improve business performance, manage risk, and enhance operations.

While this potential value is recognized, businesses still find it difficult to successfully utilize information technology to deliver business change. This means business leaders need to ask themselves the question of how to adapt their business model to create new opportunities, roles, and skills in light of new technologies, and effectively integrate these new technologies into the relevant aspects of their business.

BALANCING SPEED AND SUSTAINABILITY
A modernized workforce is key to leveraging new technologies, but companies, particularly those in their nascent stages, face their own challenges in attracting and retaining skilled individuals.

For this reason, market-leading entrepreneurs prioritize attitude over skills when recruiting talent and make it a point to invest in training their workforce to meet the evolving demands of their business. As businesses scale from start-ups into multinational corporations, they also face the need to adapt their performance and reward structures to recognize behaviors that contribute to their long-term growth.

Investing in both people and technology requires the right amount of funding at the right time. Leading entrepreneurs time their capital needs by planning their cash flow, setting key milestones, and sourcing for appropriate types of financing. Both human and financial capital can only grow at a certain rate, requiring a consistency that produces the highest likelihood of sustainable progress by strategically planning ahead instead of being opportunistic when it comes to growth. This poses the question to entrepreneurs of how to balance sustainability and speed in their businesses.

EMBRACING CALCULATED RISKS
New technologies and business processes lead to new risks. But while stereotypical entrepreneurship introduces the idea of risking everything, it is neither a useful nor healthy mindset in terms of effective risk management. It is true that market-leading entrepreneurs embrace the positive forces of risk, but they also employ a discipline that leads to taking only calculated risks. This involves weighing any potential disadvantages and assessing their ability to absorb the potentially negative impact of their decisions.

Leadership plays the role of gatekeeping risks in the early stages of a company’s growth, but as the business grows, company leaders will need to formalize or refresh procedures and internal controls. Business risk increases and diversifies with growth and can come from both inorganic and organic expansions.

Entrepreneurs can mitigate the risks from accessing product segments and new markets through strategic acquisitions, alliances, and partnerships. Evaluating these risks and performing thorough assessments are key components of the structuring and deal negotiation process. Circumstances may evolve at any point through this development, resulting in adjustments in price, revisions of terms and conditions, or the decision to simply let it go and walk away.

Even as the customer remains the focus of growth strategies, entrepreneurs must effectively pace the growth of their business by balancing their investments and attention across the seven growth drivers. This not only provides an increased potential for sustainable growth, but an enduring advantage in the competitive businesses landscape.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.

Narciso T. Torres, Jr. is a Partner and a Market Group Leader of SGV & Co.