March 2020 saw the world start to go into lockdown, with warnings that economies would need to go into hibernation, and business owners faced an unknowing fate.
JobKeeper, an interim measure in Australia to keep companies and employees connected, is now being phased down and the current challenge is how to scale as many companies and create as many jobs, as quickly as possible.
Many companies have not fared well during hibernation. Estimates are that 1/3 of startups fail in their first year, 50% in their second, and 75% in their fifth year, so about 8% of startups make it past 5 years – in the best of times; it’s too soon to know the impact of hibernation on start-ups, but it doesn’t look good.
However, even more concerning is the number of established companies that have been negatively impacted.
According to the latest ABS statistics, at June 30 last year, Australia had 72,000 fewer companies employing people than the year before, a 12.3% decrease in medium sized companies, and a 5% decrease in companies with more than 200 employees.
Since medium and large companies have been around a lot longer with a proven capacity to create long-term, sustainable jobs, the loss of these JobBuilders companies will make it even more difficult to create the jobs we need, right now, in Australia.
For this reason, it’s critically important that the remaining companies and business owners make good decisions and maximise their opportunities for growth.
In a world that is increasingly complex and volatile, there is a premium on making good decisions and making them quickly.
One way to increase the odds of making good decisions is to keep the values and culture of your organisation front and centre as you assess growth opportunities with regard to new employees, new customers, and potential acquisitions.
Business owners have access to the biggest talent pool in history
The pandemic created the opportunity, and advances in technology made it possible to demonstrate to customers and employers that most people can do their work anytime, anywhere — and that realisation has expanded Australia’s talent pool for every company.
While construction companies may need people to work directly on-site, thousands of companies can employ people who live anywhere, i.e., in urban, regional, or even international locations. And, when the borders are lifted, Australia is likely to see an influx of very talented, highly educated people from other countries eager to move to a country that is clean and green with great food, wine and health care.
There are two factors for business owners to look for when hiring a new employee, or assessing current ones.
Firstly, skills, experience and ability to perform the functions of the job, and secondly, whether they fit with the company’s values and culture. When employees fail to perform, it could be because they lack the technical skills required to do the job, but more often it’s due to lack of fit with the company’s culture and values.
When hiring new people, businesses need to take the time to have several people interview the candidates, understand the candidate’s reason for wanting to work at their company, test and validate that they have the knowledge, skills, experience and desire to do the job, and assess whether they fit with the company’s culture and values.
A company whose employees are aligned and competent, are implementing a plan, and are being well-led, will take off like a rocket.
Not all customers are equal
The easiest way for a company to grow is to sell more to its current customers. But if it really wants to grow, it will need to attract and service new customers. Unfortunately, not all customers are equal.
Business owners should use the 80/20 rule and identify which customers provide 80% of revenue and/or profit. (It will probably be around 20%).
The “ideal customer” is one who helps grow a company in a variety of ways: they contribute to revenue and profit, both the buyer and seller become important each other’s success, and they both like associating and doing business with each other.
“Non-ideal” customers, on the other hand, can actually cost a business money — they squeeze margins, pay late, complain, and demand additional services. If customers do not share the values and culture of a company, businesses may be better off sending them to a competitor.
While revenue may take a short-term hit, profit and employee satisfaction are likely to increase significantly, and that can fuel more growth.
Can 1 + 1 = 3? Yes, if it’s the right acquisition
Now that Australia is (for the most part) on the other side of lockdown, some company owners have decided it’s time to sell their business — which creates merger and acquisition opportunities for other owners who want to extend and expand their companies quickly.
However, the great majority of acquisitions fail — and they do so because of a mismatch of values and an overly optimistic assessment of synergies.
A good acquisition can fuel rapid growth, but a bad acquisition can take both companies backward. Business owners looking to supercharge their growth in 2021 need to go into an acquisition process with their eyes wide open.
The key to making a good acquisition is to look beyond the basic questions: “Will this acquisition provide additional access to the right kinds of customers for our products/services, additional products/services we can offer to our customers, or staff we need in order to grow?”.
Put simply, does it make financial sense? If the answer is “yes”, then the next question should be, “Is there a good match with the values and culture of our two companies?” If the answer is “yes” again, businesses will want to move ahead — and may even be willing to pay a premium because the odds of the acquisition going well are significantly increased.
However, if the company and its employees do not match the values and the acquirer decides to go ahead anyway, they will need to spend a lot of time, effort and money trying to change the culture, or bringing in new people to “reset” the culture. Businesses need to factor that into your estimate of the “value” the new acquisition will provide, hence the purchase price.
Of course, if simply acquiring IP, a warehouse full of products, a customer list, or if expecting to replace people following the transaction, values match and culture may not be a big issue. But, if a business is acquiring a company where its people are critically important to achieving a return on the investment it is making, it must make sure to factor “fit with values and culture” into the buy/sell equation and valuation.
Business owners trying to accelerate growth need to understand that alignment around a shared set of values and culture is critically important in achieving high performance and growth. Regardless of whether they are acquiring employees, customers or another company, culture and “fit with values “is every bit as important to company growth as functional competence and performance.
Dr Jana Matthews is the chair in business growth and director at the Australian Centre for Business Growth at the University of South Australia. She has a doctorate from Harvard, has founded five companies and written eight books, and was selected as one of the most influential women in Australia in the AFR and QANTAS 100 Women of Influence Awards 2018.
This article was first published by Smart Company