Jola Cloud Solutions' Blog

Whether you are a small company looking to grow your business or a large company looking for market dominance, you will need sound planning, consistently astute decision making and successful execution to achieve your goals.

Growth strategies are numerous and diverse but in general the three ways to build a business are; through sales, by buying other companies, or by buying their customers.

To build or to buy?

Both strategies present risks and trade-offs which need to be fully analysed and addressed before progressing.

Inorganic Growth 

This roll-up model is best suited to industries that rely on recurring revenues. Whether you are buying the whole company or just their customer contracts, the objective is to buy them for less than the terminal value of the combined group. In industries like telecommunications where resellers are valued on multiples of gross margin, it is common for suppliers to buy their resellers for the margin improvement created when a link in the chain is removed.

A sudden shift in size presents multiple challenges such as integrating new customers, changing the billing process, managing an enhanced product portfolio and new suppliers. Success comes down to skilful execution and integration with minimal investment in new systems and staff.

Organic Growth

Pursuing organic growth takes time and nurturing. You may start with an idea and a portfolio of services and go off on a profitable tangent, developing new propositions with higher recurring margins in new niche markets.

It takes time to fully understand your market, where products and services exactly meet the needs of your audience and offer something above and beyond the competition at a margin that works.

Risks occur when expansion outpaces the ability to effectively manage the new business. Growth from new revenue streams can easily divert focus and resource from core business, which in itself can be risky. On the whole, organic growth may be slower but easier to manage.

I recently read an article about marketing in the channel. Interesting points were raised about strategic planning and consistency. Aligning marketing plans with business plans and playing the long game were cited as being key. Agencies and suppliers were offering marketing support to help resellers make the most out of funding and materials available, but how effective can they be in isolation?

On the vendor/supplier side you want to create scalable programmes that are easy to manage with measurable ROI. Resellers want hot leads, new customers and increased revenue.

The challenges

The two biggest challenges for marketing are setting expectations from the outset and gaining collaborative commitment throughout the business. MDs are often attracted by the prospect of receiving new leads without committing time or resources. They hope for quick results and disappointment can turn to dis-interest.

Integration

Marketing doesn’t stand alone. It needs to be integrated into core business strategy. Companies that have grown well in the channel with recognisable brands have not only integrated marketing plans with the core business plan but also understood the needs of the market. They have packaged, priced, promoted and supported solutions profitably to meet these needs, often investing heavily to do so. The senior management team are as focused on leads as they are on opportunities and marketing statistics are measured in the same way.

Social trends generating opportunities in 2017

Of course, there are many social trends we could talk about here. I have chosen three that relate to business and are connected. In summary, there are more companies starting up in the UK and fewer of these are failing. The working environment has changed and continues to change, assisted by technology and a more flexible approach to working practices.

Businesses starting up 

In 2016 there were 5.5m businesses in the UK up from 5.4m in 2015 and 5.25m the year before that. 99% of these business employ fewer that 250 people and 96% fewer than 10 people. The proportion of businesses employing any staff at all has been stuck at 24% for the last 3 years and down 1% compared to 2013. In 2015, 383,000 businesses started trading and 252,000 businesses ceased trading. Apart from a small spike in 2009 the business death-rate has always been around 10% however, the difference, 131,000 in 2015, is the largest since records began.

The prominent trend is for very small ‘freelancers’ working in cooperation with each other or for larger organisations. They have very low start-up costs and tend not to directly employ people. Consequently, they are less likely to go bust in slow periods. In 2013 women constituted only 16% of UK board directors and by the end of 2015 this had increased to 26%. This could either mean that more established companies are appointing women to their boards or that most new businesses in the UK are being started up by women.

Location independent working (LIW)

At the end of 2015 1.5m workers in the UK stated their primary place of work was not the office - up 20% in a decade. Many would have expected this to be higher but until now technology and acceptability have applied friction to this trend. Some would say that cloud technology is essential for productive LIW and UK business has been slow to adopt the cloud when compared to business in the US. With fast internet connectivity widely available and the growth of inexpensive reliable business apps, the brakes are off and we can expect LIW to accelerate in the next few years.

Real Business say the most successful company directors have many of the following traits. What do you think?

 The Willingness to Do More

As the director of a company you are responsible for any shortcomings. You are in charge of delegating tasks, ensuring satisfactory output and in the end the ones that will have to answer to the company owner(s)/shareholders, HMRC, or clients if things do not go as planned. For this reason, successful directors know that they have an obligation to pick up the slack and they are not afraid to put in some hard work when it is called for.

The Ability to Adapt and Adjust

Everything doesn’t always go as planned. In fact, most of the time you can count on there being some deviation from the original blueprint, especially in the channel where there are so many variables to consider. A proficient company director is able to adapt to changes and quickly make required adjustments.

Diligence and Persistence

Both of these traits are needed in tandem – diligence without persistence will not put you ahead of competitors, and persistence without diligence will have you working harder but not smarter.

On 1 February 2016 HM Revenue and Customs (“HMRC”) introduced emergency legislation to combat the threat of VAT fraud in the wholesale telecommunications sector.

These VAT changes only affect voice and related data services but do not affect service charges, access or line rental services. Voice call charges (including VOIP), data usage and text usage are all affected.

So if your monthly bill for usage charges from a supplier was £5000+VAT (£6000), it is now just £5000 and the £1000 of VAT you used to pay to your supplier, you now owe directly to HMRC.

I am still amazed by how many companies do not set an annual budget at the beginning of each financial year. Producing a budget starts with the sales forecast and if you are not great with spreadsheets there are plenty of .co.uk sites where you can download a free generic template. Group your main products into categories and decide how many you expect to sell each month, add the sale price and your buy price for each category and the template will calculate your gross margin. Decide how much of that gross margin you are going to spend on Overheads (salaries, travel costs, marketing etc.) and out of the bottom drops your monthly profit.

If your business requires capital expenditure, put this on a separate sheet and decide the period over which you want to write these assets off (depreciation). At this point you should probably give everything to a management accountant who will ask you questions like how long your customers take to pay you and when you have to pay your bills. If you cannot afford a management accountant yet there are management accounts templates on the web that will also turn your assumptions into a profit and loss, cash flow forecast and balance sheet for your business.

In any business, and especially those in start-up and early growth, cash flow is important. For companies that sell products and services requiring regular monthly payments, insisting your customers set-up a direct debit mandate with you seems like a good idea – and it is. 

Usually at the start of the month you will send your customers a bill stating how much they owe you and at the end of the month you take that money directly from their bank, without them having to do anything. No more late payments or endless emails and phone calls chasing them. From your customer’s point of view they don’t have to worry about transferring money or writing cheques and they have plenty of time to query the bills before the money is taken. Even if they have a dispute after the money is taken The Direct Debit Guarantee entitles them to a full and immediate refund from their bank and they can cancel their mandate at any time. Seems like a perfect arrangement but there are a couple of things you as the supplier need to consider; 

The objective of management accounts is to provide timely and key financial information for managers to make short-term decisions.

They are usually produced monthly and cover cashflow, an income statement and a balance sheet. You should also keep an eye on your margins and measure your performance in all areas against a budget.

Gross margin

Companies are often obsessed by revenue and of course this is a key indicator of progress, however I like to focus on gross margin. The average gross margin you should expect from your business will depend on what industry you are in, the products you are selling and where you sit in the supply chain. A distributor may be happy to operate on a gross margin of 5% whereas a reseller may need 40% to cover the cost of serving their customers and to compensate them for the value they add. I am always thinking about how I can buy better, reduce the cost to serve without affecting quality and the optimum price for each product. Look at the margin analysis by product to see if your mix of products is right and think about what you can do to increase the volume of higher margin products.

A recent survey by Vanson Bourne found that 74% of small businesses embraced BYOD (Bring Your Own Device) to work to improve productivity. Microsoft also recently reported that 59% of small businesses were likely to embrace the cloud to reap the productivity benefits. As productivity is such a driver for change, we decided to share our top tips for running more productive IT services.

1 – Automate

Manual processes are notorious drivers of rework and lost efficiency. For example, automation has reduced invoice processing costs by 53 percent for some companies, and decreased clerical demands by 25 percent.

Where should you start?

The first step is to determine the most arduous tasks that take up your time, whether it is an IT service responsibility or a business management task. IT, billing, monitoring, management, backup and reporting can all be improved through the use of automation. Rather than wasting time and money on manual tasks while simultaneously putting you at risk for more errors, consider automating business processes that take up more time than you can afford.

Websites tend to be a focus when you are starting up your business and often over time, the company website gets forgotten. Does any of this sound familiar?

1 – You are busy

You work long hours managing your core business and updating your website doesn’t come close to being a priority. The website was put together for the launch and there is no dedicated resource to manage it. Your team is busy supporting you and your customers and with no one person looking after the website, it doesn’t get updated.