Cutting edge graphs
Thursday, December 21, 2006/
Saw-tooth graphs can tell you a lot about a business, especially your business.
I like saw-tooth graphs. Take a look at yours. Have a look at the total annual revenue over say the last 20 years, or for the shorter period that you have been in business.
It looks a bit like a saw tooth. Up a bit, then a bit of a pull back, and then up a bit further and so on. Provided each low point of the saw tooth is higher than the pervious low point, and each high point is higher than the previous high point, your graph is perfect.
Not too many businesses achieve this growth over a long period of time. What often happens after a business has been running for 20 years is that the annual growth increases consistently for the first 10 or 15 years and then evens out, and sometimes goes into decline.
Managements offer all sorts of explanations for this phenomenon; such as the economy, the market has turned and is tougher than it used to be, El Nino has damaged sales (in the past, that was actually an excuse offered consistently by some companies that were experiencing difficulty in growing), and so on.
What has actually happened when companies have achieved rapid growth and then the growth stalls is a lapse of memory. Management forgets the reasons for the initial growth.
The company was more aggressive in the market place, it was prepared to take risks; it had a lot of resources that in the early days were used to stimulate sales, but as this effort was successful, resources became tight with the result that there were less available to stimulate sales; the confidence that management had that the company would continue to grow was reflected in prices, which became increasingly uncompetitive, and the belief that the world would not come to an end resulted in management ignoring the opposition and the catch-up football it was playing by introducing new and innovate choices at more competitive prices.
These are just a few of the danger signs of which growing companies have to be aware. They forget the fundamental rule in competitive sport, that you are only as good as your next win.
In business, you are only as good as your next sale, and in an intensively competitive environment you simply can’t expect that because sales were easy yesterday they are going to be just as easy tomorrow.
So, if your graph has levelled out, it is time to take a rigorous look at why this has happened. It may be that the market is saturated and is not growing. To accept that as a reason for not growing is the kiss of death, because it is an admission that you can’t win business from your competitors.
If the graph has softened, just accept that there is something wrong, and that this something is within your organisation. You can blame the weather or the barmy army or the greenhouse effect, but if they are a problem, your inability to grow reflects the fact that you have not responded to these phenomena.
What you need to do is to have a look at the reasons you were successful in the first place and don’t be frightened to go back to doing some of those things that you have forgotten. The likelihood is that if they helped you get started and helped you grow in the early days, it is more than likely that they will do it again.
If, on the other hand, you do have a saw tooth graph of gradual increments in growth, then the study is to discover why you think it is that you have been successful in growing with the occasional set backs. Why is it that each high is higher than the last? Find out what you are doing right and keep doing it, with a few bells and whistles.
If, on the other hand, your graph is going straight up without a correction, the likelihood is that at some point in time there will be a correction unless you constantly understand the reasons for the continual growth. The main reason will be that you are competitive.
Understanding what it is that gives you that competitive edge, and working very hard at maintaining it, helps to keep you on a growth path. The world does not stop. Sure as hell, there will be competitors out there looking at what you are doing right and working out how to do it better than you.
So, have a look at your graph and try to determine whether you are a saw tooth, an up-and-then-level-off, or a straight-up graph.
Some people mask problems in that their growth is through acquisitions or moving interstate. Separate out your figures so that you don’t take interstate growth or growth through acquisition into account. Look at graphs according to product lines or demographics independently of interstate operations or acquisitions to see if the fundamental business is growing.
My preference is always for the good old saw tooth.