Build a better business now

Adam Gosling
Do you have a vision for your business? Do you want to grow for gold and play at the big end of town? Perhaps you have big plans for a big exit that includes a major trade sale to ensure a comfortable retirement? Or maybe you have your eye on the plans for Australia to get its own version of the tech-heavy Nasdaq and want to take your company public?

There are plenty of options out there that can help you accelerate your business far beyond what you could achieve through organic growth, but regardless of which growth path you chose there’s one thing they all have in common. You have to get the fundamentals in place first.

You need a strong management team with the skills and expertise to do more than run the business operationally. You need deep demonstrable relationships with existing customers and suppliers. You need a solid financial plan, a marketing strategy and a proven ability to win business, before most inventors will sign the cheques that launch your outfit toward the big time and your own net worth toward the rich list.

Before you start hiring more sales staff, recruiting engineers and planning how to increase your marketing spend, you need to make sure that’s what you really want. Moheb Moses, a co-founder and Director of boutique channel consulting firm Channel Dynamics, points out that a lot of resellers aren’t all that interested in growth. Many are happy with the success they have achieved. They have a comfortable lifestyle and the last thing they want is to complicate things with the high stress and hard work of a growth strategy.

Well good on them! Maybe you aren’t satisfied with the income you earn from your business and you are determined to buy a better house, drive a better car and drink better French champagne. Still, growth might not be the best answer warns Moses. It’s something that causes a great deal of consternation for his clients, which are generally vendors looking to increase their revenue from the Australian market.

Vendors tend to make the assumption that resellers want to grow, he says. There are elements that do, but there are those that don’t. The dynamics of gross profit for resellers and vendors are very different. For vendors, with low cost goods and a 60 to 80 per cent margin, increased revenue is an easy answer. For every extra dollar they sell that’s 60 cents more in the bank.

For resellers it is different story. If a reseller is making 25 points margin in their business, earning an extra dollar only puts 25 cents in their wallet. A 10 per cent increase in sales is nothing compared to a 10 per cent increase in margin. So resellers tend to profit more by focusing on cutting cost or growing margin by increasing the services they sell. More gross revenue can mean higher costs, more work and only a little more money in
your pocket.

Okay, so let’s say you’re still committed to a growth strategy. You want to increase sales, increase staff and double your turnover. What options do you have?

Generally it comes down to two choices. You either work harder, smarter and wait longer to grow organically, or you look for some way to fund your business so you can change quickly with backing that allows you to expand.

As any experienced operator knows, organic growth is one of the hardest strategies to pull off. Sure it works fine for a while, but each time the business reaches out for a stretch target, resources and funds become scarce, threatening the cashflow. Operational and support staff are pushed to their limit, credit facilities are pressured and even the slightest hiccup can bring down the whole house of cards. Resellers don’t go broke because they can’t sell stuff, it’s because they can’t pay their bills.

Vivian Stewart, a Director of Hall Capital, has a long history in the Australian IT industry. Co-founder at Magna Data and angel investment group TiNSHED, Stewart has also held senior marketing positions at Intel and worked with the University of Technology in Sydney as a Commercialisation Manager bringing new technologies to market.

Hall Capital helps companies find money, either private money invested by high net worth individuals, or through public floats to the stock exchange. It also does a lot of work in mergers and acquisitions, trade sales.

While getting investors to put money into your business might mean giving up some of the equity, it’s worthwhile, says Stewart. “It is just a decision people need to make. Investors bring in discipline and structure that helps make sure you are prepared for scalable growth. That old adage about having a little bit less of a larger, more solid and less risky pie, is better than having all of something really small”, he says.