John Hayes, Chairman, NOW Corp
The need to grow businesses is well known: most of the innovation that drives the U.S. economy comes from small and mid-size businesses (SMBs), and they employ half of all Americans and produce more than 60% of new jobs.
These businesses are the foundry for job creation in the U.S., but they are getting a declining share of financial support from government-insured financial institutions.
Given the importance of SMB business growth, it is worth spending some time considering what is required for this growth to happen. I have been fortunate to be both a student and a practitioner of this topic for 40 years (since we started the company that created Peachtree Accounting in 1975). During that time, I have been part of the effort that started five companies, which have each grown into significant businesses on their own and as part of the larger entities that acquired them.
At NOW Corp, we have the potential to grow much larger than the earlier five combined. The growth that occurred in these previous companies was both a combination of luck and a set of other ingredients – which often made the luck happen. In addition, each of these businesses served other SMBs. The lessons of these earlier start-up businesses, and those from my time as a lawyer advising businesses, provides a foundation for thinking about what is required to grow a businesses – the four Cs outlined here.
NOW Corp is building a system that provides “capital” for business growth – one of the four Cs. But capital alone is not enough. My teammates at NOW also have substantial experience successfully growing companies. We have spent many hours trying to define a formula for what it takes to grow a company. Our definition of a simple formula for successfully growing a business is summarized in four Cs: Capital, Customers, Capacity, and Commitment. We believe you can encapsulate all the individual elements required for success in these four Cs. Limiting ourselves to only four key ingredients makes it easier to focus on the high level, while also digging into the required detail. We are outlining the four Cs here and will dig into each in more detail in forthcoming articles.
- Capital – The need for capital is obvious. It is extremely difficult to grow a company without capital. Even if you are bootstrapping and growing on earnings, growth without capital is impossible. But, how you get the capital and how much time you spend on this aspect of growing your company will frequently be the difference between success and failure. In my opinion, you should spend more time growing capacity and customers than capital.
Lara Hodgson, President & CEO of NOW Corp, frequently says the key is, “The right capital at the right time at the right price.” She is absolutely right. An upcoming blog will focus on “Sources of Capital,” which includes more than just the accounting definition of sources of capital – “debt and equity.”
- Customers – You will not grow a company unless you are either growing the number of customers you have or growing the amount each customer spends with you, or both. Some commentators on business growth talk about the need for having a great product or service. Having a product that customers will buy is important, of course, but having the world’s best mouse trap will not create revenue if you have no customers. It is an interesting fact that many companies succeed in spite of mediocre products or services, but they have customers, capacity, capital, and commitment. We do not list “product” as one of the key ingredients.
- Capacity – By capacity we mean three things: the first is the right people. Without the right people, growth is not likely. Of course, you also need the facilities, systems, technology, etc., the second part of capacity. The third element of capacity is personal – it is the capacity of the team to absorb what you learn as the company tries to grow and react to that growth. Learning from your customers (very important!), learning from competitors, and having the capacity to set aside your ego and change direction (not the same thing as giving up, but making a course correction) is critical.
- Commitment – Finally, the forth C is commitment. A friend who is almost making a living with a great iPhone app describes it as “passion.” I accept that. But, growth and success requires more than just passion. It requires a combination of the stubborn perseverance, as Winston Churchill said, to “never, never, never give up,” and the capacity described above to adjust to the market. “Never give up, but tacking with changing winds is often required.”