By Darren Shirlaw, Co-Founder of Shirlaws.
This article discusses how to avoid being dragged backwards – just when you thought you were actually jumping.
Keep moving forward by upgrading the business
You can jump but you can also be dragged back if you miss a phase.
Businesses require a full upgrade before each black hole. If you wait until the balck hole you’ll swim in circles trying to manage the business and upgrade it at the same time. Fro example at the 700m black hole the upgrade should come at 600m. Don't wait until its too late.
From an investment/cost perspective businesses should allow about 5% per cycle. So for example at 450m you should be thinking of investing 5% to get from 450 to 600m by investing in the product. But this 5% isn’t necessarily per year.
One further consideration is the businesses risk profile. If the business is not a risk taker then they wont do this. Of course, the decision has to suit the business and the parameter within your control is time.
If you wanted to get to 600m and you know it will cost 5%. You could spend 1% over 5 years or 5% all in one year. If the business wants to push time out it can.
Maintain your margins
I was with a business recently and they told me they had a margin of 20% at 600m and 10% at 700m. This is a classic black hole symptom.
Businesses should consider their margins at the top of a cycle and look toward the next cycle because that's the margin they’ll make again. For example if you make a margin of 20% at 600m then you’ll make 20% margin at 3.3bn (the next cycle) You’ll only dip down to make a 10% margin through the 700m black hole.
You can bounce over the 700m black hole; a 20% margin at 600m is 120m but you’re only making 70m profit today is it worth 50m in profit to get you out of the current black hole?
To hear Darren Shirlaw explain the detail behind these concepts attend his sessions in the Shirlaws room at the International Festival of Business CXO event on 23rd June.
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