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Why and how you should scale up your business?

If you consider what sets companies like eBay, Alibaba, Netflix, Google, Starbucks, Apple, Cisco and Dell apart from other companies, their ability to continuously innovate and create high growth will probably come high on your list.

So should the fact they’ve all successfully transitioned from start up to scale up status without losing their ability to be dynamic and entrepreneurial.

Then there’s the fact they’ve helped create thousands of full-time and part-time jobs throughout the world. Twenty-three-year-old eBay, for example, employs 14,100 full- and part-time employees while Google’s parent company Alphabet Inc. has 88,100 full-time employees.

In his book, Scale Up!, the FD Centre’s Chairman Colin Mills defines scale ups as companies which have grown by 20% a year for a minimum of three years and which started the three year period with a minimum of 10 employees.

Scale ups disrupt and revolutionise entire industries, according to a Deloitte & THNK report. “They embody ingenuity, innovation, and foresight,” its authors concluded after studying 400,000 enterprises worldwide.

There’s a common misconception that only start ups can be innovative, dynamic and entrepreneurial. Yet as scale ups like Google and Alibaba illustrate, that’s far from the case.

Perhaps start ups attract more attention because there’s so many of them: it’s estimated that there are 300 million start ups globally. By comparison, only a tiny fraction of start ups ever survive long enough to make the transition to scale up, according to the authors of the Deloitte report.

“Our research shows that the chances of a new enterprise to ascend as a scale up are around 0.5%, which means that only 1 out of 200 surviving new enterprises will become a scale up. ‘Unicorns’ make up the even smaller subset of scale ups; only 104 start ups are valued over $1 billion.”

Those companies that do become scale ups help to boost local, national and international economies. They provide direct, ongoing employment and that, in turn, creates more consumer spending which in turn stimulates the economy and expands the tax base.

Or as business guru and venture capitalist Daniel Isenberg says in Scale Up!, “One venture that grows to 100 people in five years is probably more beneficial to entrepreneurs, shareholders, employees and governments alike, than 50 which stagnate at two years.”

Contrary to what many policymakers believe, start ups don’t help economies to flourish or cause per capita income to rise.

“The relationship between per capita income and entrepreneurial activity is generally negative, rather than positive as is often believed,” wrote Scott Shane, Professor at Case Western Reserve University, in Entrepreneur magazine. He referenced a Gallup Organisation survey which compared per capita Gross Domestic Product (GDP) with the fraction of the population that reported being self-employed in 135 countries. It showed that the self-employed fraction had a negative linear relationship with the log of GDP.

“That is, self-employment rates are lower in rich countries than in poor ones.”

But growing a company past the start up phase is not without its share of challenges, whether they are related to employees, sales and marketing, operations, administration, or finance. Most importantly, if growing companies don’t have the right infrastructure to support their expanded operations, those challenges can become increasingly severe.

“While on paper, they may have the revenue, the manufacturing base or customer reach of a substantial business, the culture, the controls, the processes, the personnel and the leadership remain those of a much smaller business that they were a short time before,” says Mills in Scale Up!.

“Worse, they haven’t yet accumulated the resources to build and maintain that infrastructure.”

If the situation is not resolved, the business will outrun itself (cash reserves will dwindle as it tries to meet the expanded demands) or get stuck (as the owner and employees find themselves unable to cope with the problems).

But if you revise your business model, you can overcome these challenges or even avoid them altogether.

“You need to consider your whole business model, because if you have a terrible business model, then the last thing you want to do is to start scaling it,” says Mills.

The FD Centre’s part-time FDs or CFOs help clients revise their business model using a framework known as the ’12 Box’ approach.

It has three levels:

  1. Operational
  2. Strategic
  3. Business Support

Operational

This refers to finance operations and focuses on two key aspects: cash and profitability. There are four boxes: Cash Flow Management and Profit Improvement (which generate money), and Internal Systems and Reporting (which generate time for management).

Strategic

This involves your finance strategy: how are you going to finance the business to achieve future cash and profits? The four boxes in this section cover: Risk Assessment, Strategic Funding, Strategic Activities and Exit Planning, and an Implementation Timetable.

Business Support

This involves crucial tasks such as compliance, tax planning and legal issues, banking relationships and outsourcing. In the case of The FD Centre’s FDs (and the CFO Centre’s CFOs), they don’t carry out the tasks but instead, manage the work on a client’s behalf. They’ve built relationships with the right people in each country where they operate so that they can connect clients with the right supplier at the right cost when they need it, and then manage the work on their behalf.

Take the F Score: Find Your Future Challenge Areas

To help you identify which one of these 12 areas is a potential current or future pain point for your business, the FD Centre/CFO Centre has created a quick assessment form known as the ‘F Score’. (It will only take nine minutes to complete.)

The F Score features a series of questions built around the 12 Boxes, designed to identify your areas of strength and those which represent a gap. When you’ve completed the questions, you’ll receive an eight-page report which will reveal your current or future challenges. It will not only rate the performance of your company’s finance function but also uncover untapped opportunities for non-linear growth.

To discover how the FD Centre will help your company to scale up, please call us now on 0861 127 280 or contact us here.

Free 1-1 Finance Session

Do you have a burning question about any of the following:

  • Cash flow management
  • Funding
  • Profit improvement
  • Exit planning
  • Reporting
  • Getting the most from your bank?

Book now for your complimentary 30-minute finance breakthrough session with one of our part-time FDs/CFOs. Get the answers you need to scale up your business.

Ask the FD

If you’ve got just one finance-related question and you’d like us to send it across to our team of top FDs, please let us know, and we’ll get back to you within 24 hours.

Confessions of part-time FD’s!

Leaving lucrative and secure C-suite positions mid-career to build a part-time portfolio might seem crazy but many of those who’ve done it say it is one of the sanest decisions they’ve made.

Take Michael Citroen, who at 58 years old is a 14-year veteran of the part-time portfolio job world. The former Group Finance Director (FD) relishes the challenge and excitement of working with half a dozen SMEs in his role as a part-time FD. “It’s nice going into different businesses and meeting different people and having different challenges to deal with. There’s so much more variety every day.”

He particularly likes that the businesses he deals with are all at different stages of growth. Some are very new, others are more established, and a couple have been guided through a sale with his help.

Citroen had been working full-time as the Group FD of a large privately-owned company when he made the decision to go freelance.

“It was getting very political,” he recalls of his former company. “And I also wanted to be in control of my own diary,” he says.

So, in 2003, he resigned and joined FD UK, a company that offered part-time FDs to SMEs. When that company was bought out by the FD Centre five years later, Citroen stayed on and is still working with them today—part of an expanding international network of part-time portfolio FDs.

“That’s another great aspect of working within a network of part-time FDs: there’s massive backup. If there’s anything you need to know, you just ask the network, and you’ll get answers back really fast. I wouldn’t have that if I was working alone.”

Besides the enjoyment of working flexibly with entrepreneurs and with other part-time FDs, Citroen says he values the security that being a part-time FD with half a dozen clients brings.

“You don’t have all your eggs in one basket,” he says, explaining that if one client leaves he knows he can attract and retain another, so his income isn’t at risk.

“The FD Centre is very focused on helping its part-time FDs to win new clients,” Citroen says. “I could never have done as well as I have if I’d had to do it on my own. I had no idea about marketing and the technical aspect of things like websites when I first began.”

Like many people starting out on the part-time path, Citroen had been worried about giving up a salary with perks initially. “To begin with it was a little insecure, giving up a regular job.”

He quickly discovered that the financial return you get is contingent on the amount of energy you’re willing to expend.

He realised early on the new lifestyle would enable him to spend more time with family whilst maintaining a good level of income.

“It gave me time to be with them without having to answer to anybody.”

It’s something that another part-time FD Neil Methold has appreciated about this way of working. Being a part-time FD for the past six years has meant he’s been able to play a large role in his teenage son’s life: getting him settled into senior school and being able to attend almost every one of his sporting events.

“If I’d been working full-time I wouldn’t have been able to do that. And that’s priceless,” says 53-year-old Methold.

Like Citroen, Methold has found the move into the part-time portfolio world beneficial in so many ways. Not only has he been able to enjoy more family and leisure time but he’s had the pleasure of coaching and mentoring people working within his clients’ companies.

“My greatest satisfaction comes from coaching and mentoring people within these companies so they become self-sufficient and can do more and more of the work themselves.

“Nowadays I say to clients ‘My success here will be inversely proportionate to the number of days I charge you. In other words, the more I can get your people to do the work on a daily basis the less I have to do’. I see it as my responsibility to ensure the work is done, not necessarily to do it all myself. I think that has a significant impact on client retention.”

So too does learning to adapt your style of working to each client, says Methold. It wasn’t something he was aware of when he first started out, he confesses.

“But one day, I was mowing the lawn and thinking it all through in my head. That’s when I realised I was being too harsh, too demanding, too assertive, too telling. You have to be direct in a big company because there are shareholders and high expectations.

“But that doesn’t work with SMEs. You have to use a different style—you have to be softer and more accepting that things don’t necessarily move as quickly as they do at large corporations and that there are going to be different priorities.”

It was when he began to adapt his style of working to suit each client rather than going in “full guns blazing” that he started to enjoy much better relationships. It’s why he has retained his clients for so long, he says.

“You can’t go in and be all corporate. SMEs don’t want that. They want someone they can trust and rely on and build a good relationship with. A friendly face. Not just a very clever big shot. You need to be down to earth and be people-focused.

“When I really accepted that and started to slow down my own pace I become more accepted. You have to adjust and be a bit of a chameleon to suit how they are and not how you think they should be.”

Citroen says the ability to communicate is critical in your role as a part-time FD. “You have to have the ability to talk to your clients on a personal level and to be able to relax with them. Clients will call you late at night or on a weekend because they’ve had an idea they’re excited about and want to share with you. People who can’t handle that aren’t successful as part-time FDs.”

Both he and Methold agree that time management is key to success in the part-time portfolio environment.

“Although I’m not in contact with my clients every day, I do keep in touch with them every week, whether it’s a phone call, text or email,” says Citroen. “It’s all part of the relationship I have with my clients.”

Successful part-time FDs need to take the initiative when it comes to client contact, says Methold. “You have to work really hard at proactive communication with your clients. It’s easy then for them to see you are valuable. I will go to see a client, and on the way home have three 20-minute conversations with three other clients who I haven’t been with that day just to keep moving them forward.

“You have to commit to doing that extra stuff. You can’t just go in for a day, leave and send a bill.”

This obviously takes a lot of organisation, and that’s another skill a successful part-time FD must have (or develop!), he says.

“I have various lists, so I know what I have to do and at what point each week to make sure I don’t drop any balls because when you have lots of clients doing different things, it’s very easy to forget stuff.

“You need to be aware of what’s happening with each client and what you last spoke about. You can’t go, ‘Ah, can’t remember that last meeting. Sorry.’ When they are talking to you, you are their FD.”

Being willing to deliver such high-quality service is something that makes a difference when it comes to client retention, he says.

“Clients really do value that you put yourself out to ring them at the weekend or speak to them late at night or when you’re on your holiday. That s when you and the clients really do start to cement the relationship.”

The relationships you have with clients is what helps to make this such a rewarding way of life, he says.

Citroen agrees, adding that working full-time for one company pales in comparison with working part-time across a number of growing businesses. “The job satisfaction you get working as a part-time FD is enormous. I would definitely never go back to full-time employment.”

To succeed, you need to embrace the “F” word!

What do Sir James Dyson, the Mercedes F1 team, Pixar, Google and the airline industry have in common?

They’re hugely successful, yes, but the thing that links them is they never shy away from the ‘F’ word—Failure. Instead, they face and learn from their mistakes, errors and mishaps. So says Matthew Syed, award-winning Times journalist and best-selling author of ‘Black Box Thinking: Marginal Gains and the Secrets of High Performance’ (John Murray).

“We have an allergic attitude to failure,” he says. “We try to avoid it, cover it up and airbrush it out of our lives.

“For centuries, errors of all kinds have been considered embarrassing, morally egregious, almost dirty.

“This conception still lingers today. It is why … doctors reframe mistakes, why politicians resist running rigorous tests on their policies, and why blame and scapegoating are so endemic.”

This notion of failure needs to change, he writes. “We have to conceptualise it not as dirty and embarrassing, but as bracing and educative.”

That’s because success in business (as well as in sport and in our personal lives) can only happen when mistakes are confronted and learnt from and there’s a climate in which it’s safe to fail.

It’s what the airline industry has done so successfully, he says. Instead of concealing failure, the aviation industry has a system where failure is inherently valuable and data-rich, says Syed.

In fact, his ‘Black box thinking’ refers to the black box data recorders that all aircraft must carry to provide information in case of accidents. One box records instructions that are sent to all on-board electronic systems and the other records the voices in the cockpit.

“Mistakes are not stigmatised, but regarded as learning opportunities,” he says. After a crash, an independent team investigates.

“The interested parties are given every reason to cooperate since the evidence compiled by the [independent] accident investigation branch is inadmissible in court proceedings. This increases the likelihood of full disclosure.”

What’s more, after an investigation into an accident is completed, the report is made available for everyone.

“Every pilot in the world has free access to the data,” writes Syed. “This enables everyone to learn from the mistake, rather than just a single crew, or a single airline, or a single nation.”

Syed gives the example of United Airlines Flight 173 which took off from JFK International airport in New York on December 28, 1978, bound for Portland Oregon.

Just before the airplane went into land, the flight crew became convinced the landing gear hadn’t locked into place. They then spent so long trying to fix the problem that they ran out of fuel and had to crash-land into a residential area, killing eight people on board.

An investigation discovered that the flight engineer hadn’t been assertive enough in telling the Captain the fuel was running low. The Captain meantime was obsessed with trying to fix the landing gear problem and avoid giving passengers a bumpy landing.

As it turned out there had not been a problem with the landing gear in the first place.

Afterwards, new protocols were put in place and training methods were revised. As a result, nothing quite as bad has happened again.

So much so that flying on airplanes is now safer than any other form of travel because the industry investigates and learns from its mistakes.

“Openness and learning rather than blaming is the instinctive response – and system safety has been the greatest beneficiary,” Syed told Director magazine.

Dyson Vacuum Cleaners

Sir James, the designer, inventor and entrepreneur, is another committed to learning from failure.

He made 5,127 prototypes of his bagless vacuum cleaner before he got it right. This practice has obviously paid off because Sir James is now worth more than £3 billion.

“Creative breakthroughs always begin with multiple failures,” says Sir James. “…True invention lies in the understanding and overcoming of these failures, which we must learn to embrace.”

Without them, innovations won’t happen, he says. “Failures feed the imagination. You cannot have the one without the other.”

Great inventors always develop their insights not from an appraisal of how good everything is, but from what is going wrong, Sayed wrote in the Daily Mail.

Using Failure To Grow Your Business

Obviously, failure is only useful if it’s acted upon. “You can build motivation by breaking down the idea that we can all be perfect on the one hand, and by building up the idea that we can get better with good feedback and practice on the other,” says Syed.

Some of the world’s most innovative organisations like Pixar, the Mercedes F1 Team and Google “interrogate errors as part of their strategy for future success.”

Take Google’s decision to test which shade of blue in its advertising links in Gmail and Google search worked best, for example.

Rather than ask its designers to choose the shade of blue for those links, Google decided to run tests known as ‘1% experiments in which 1% of users were shown one blue and another in which 1% of users were shown another blue. Then Google went further and ran 40 other experiments showing all the shades of blue.

It paid off: Google found the perfect shade of blue (the one that users were more likely to click on) and made an extra $200 million a year in revenue.

Why Don’t Companies Embrace Failure?

One of the biggest problems in business is the collective attitude we have to failure, says Syed.

“We love to think of ourselves as smart people, so we find mistakes, failure and sub-optimal outcomes challenging to our egos,” Syed said in an interview with Director magazine. “But the reality is, when we’re involved in complex areas of human endeavour—and business is very complex—our ideas and actions not being perfect is an inevitability.

“If we’re threatened by our mistakes, and become prickly when people mention them, we don’t learn from them. We need to eradicate the idea that smart people don’t make mistakes.”

To really be successful, businesses need to encourage a company-wide failure-embracing culture which in turn will create a “process of dynamic change and adaptation”.

“Success happens through a willingness to engage with, and change as a result of, our failings. Get that right and everything else falls into place,” he says.

If you would like to download the FD Centre’s report on Risk you can do so here

You can also arrange a complementary 1:1 Finance Breakthrough Session with one of SA’s top FDs here

 

What a Part-time Finance Director can do for your company

You might think a Finance Director’s role is confined to traditional finance activities, but today’s FD’s (or CFO’s) can add invaluable strategic direction to your business.

In the past, an FD’s responsibilities might have been confined to high-level accounting such as providing timely financial statements and monthly management reports, managing investments and expenses, monitoring cash flow, and managing risk. But as the business landscape has become more complex over the past decade, the role of an FD has changed.

That change is due to factors such as the global financial crisis—the biggest since the Great Depression of the 1930s, disrupted and volatile markets, the rise of big data, and the impact of digital and social media.

As a result, CEOs and their Boards expect so much more from CFOs, according to a KPMG report.[1]

“CEO’s are increasingly looking to their finance leaders to help drive wider business strategies,” says Simon Dergel, author of ‘Guide to CFO Success’. [2]

They expect FDs to make decisions and shape their plans based on the company’s ambitions, he says. As the keeper of the company’s data with an understanding of every department’s objectives and performance, they can play an active role in refining and aligning business strategies.

“Perhaps the biggest change in terms of the CFO’s role in business today is that their advice is not only valued—it is necessary,” says Dergel.

“Businesses are currently dealing with a wave of disruptive competitors and fast-changing customer expectations, while also managing a global talent shortage and volatile financial conditions. The wisdom and experience of finance leaders make them indispensable in the boardroom as companies look to tackle one of the most uncertain economic periods in decades.”

Most importantly, CFOs are delivering on these expectations. The new breed of FDs are now much more forward-looking. They wear three ‘hats’ at any given time: financial expert, active management team member and leader of the finance function.

Given the opportunity, they can perform multiple roles within a company, working both on and in the business. Not only can they direct financial performance and protect the financial integrity of the company but they can also drive strategy.

This is borne out by James Riley, the Group Finance Director and Executive Director of Jardine Matheson Holdings Ltd., who says, “A good CFO should be at the elbow of the CEO, ready to support and challenge him/her in leading the business.

“The CFO should, above all, be a good communicator—to the board on the performance of the business and the issues it is facing; to his/her peers in getting across key information and concepts to facilitate discussion and decision making; and to subordinates so that they are both efficient and motivated.

“Other priorities for a CFO are to have strength of character, personality, and intellect. I take it as a given in reaching such a position that an individual would have the requisite technical knowledge and financial skills.” [3]

How Start-Ups and Scale-Ups Benefit?

[4]

It found FDs play key roles in not only managing a young and fast-growing company’s finances but also in setting broader strategic goals and establishing and achieving financial and non-financial milestones.

When the company is at a stage when it needs external investment, the part-time FD can manage the process to ensure it raises the right type of funding from the right sources. The part-time FD can also provide more comprehensive reporting as well as manage the relationship with the external investors, whether they are venture capitalists, private investors or banks.

Part-time FDs also help to establish sound rep

orting systems and tools that help improve reporting metrics and communications to investors.
They also play a key part in setting and monitoring company strategy and maintaining a balance between investing in growth, building market share and preserving capital for future opportunities.

As they grow, the need for a part-time FD’s financial and strategic acumen becomes more acute, FERF found.

The FD Centre’s part-time FDs bring these skills to every client at a fraction of the cost of their full-time counterparts. For instance, its part-time FDs can:

  • Provide you with an overview of your company so that you can make sound decisions about its future.
    • Help you to understand your company’s finances.
    • Eliminate cash flow problems.
    • Identify cost-savings within your company.
    • Improve your profits.
    • Create a realistic business plan and so make better financial decisions.
    • Help you and your management team to manage your finances with ease.
    • Develop clear strategic objectives.
    • Identify your Critical Success Factors and Key Performance Indicators (KPIs).
    • Find and arrange funding.
    • Understand your main profit drivers.
    • Identify your best customers.
    • Sort out your tax position.
    • Introduce timely, easy to follow management reports.
    • Facilitate expansion in your country and into other countries
    • Build value to make your company more attractive to investors or buyers

To discover how a part-time FD will help your business, visit our website www.fdcentre.co.za or call 0861 127 280 today to enquire further.

[1] ‘The Changing Role of the Chief Financial Officer’, Mbatha, David, KPMG

[2] ‘What Makes a Great Modern CFO?’, Dergel, Simon, Oracle, https://blogs.oracle.com, June 7, 2017

[3] ‘THE ROLE AND EXPECTATIONS OF A CFO A Global Debate on Preparing Accountants for Finance Leadership’, International Federation of Accountants, www.ifac.org, 2013

[4] ‘Center Of The Storm: The CFO’s Role In Start-ups And Rapidly Growing Companies’, Financial Executives Research Foundation, www.financialexecutives.org, March 28, 2017

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