{"id":2777,"date":"2015-11-14T01:58:07","date_gmt":"2015-11-14T01:58:07","guid":{"rendered":"http:\/\/somametrics.com\/clone\/?p=2777"},"modified":"2020-06-08T18:05:45","modified_gmt":"2020-06-08T18:05:45","slug":"power-predictable-revenue-growth","status":"publish","type":"post","link":"http:\/\/somametrics.com\/clone\/power-predictable-revenue-growth\/","title":{"rendered":"Why Predictable Revenue Growth is Vital"},"content":{"rendered":"\t\t
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What is Predictable Revenue Growth<\/h2>\n

When we have Predictable Revenue Growth, we can set our revenue targets each year and achieve it within a narrow margin of error (no more than 5%). Not only that, we can also determine that each year\u2019s growth rate will increase by an accelerator amount (20% for example), continually stretching our capabilities towards a high performance company.<\/span><\/p>\n

To illustrate, let\u2019s assume that our revenues are $10,000,000 for the year.<\/span><\/p>\n

To attain Predictable Revenue Growth, let\u2019s say we set our first year growth rate to 15% and decide to accelerate that rate by 20% each year, which is another way of saying we will commit to a 20% incremental improvement each year Here is what the first five years would look like:<\/span><\/p>\n\n\n<\/colgroup>\n\n\n\n\n
Year 1<\/td>\nYear 2<\/td>\nYear 3<\/td>\nYear 4<\/td>\nYear 5<\/td>\n<\/tr>\n
15.00%<\/td>\n18.00%<\/td>\n21.60%<\/td>\n25.92%<\/td>\n31.10%<\/td>\n<\/tr>\n
 $11,500,000<\/td>\n $13,570,000<\/td>\n $16,501,120<\/td>\n $20,778,210<\/td>\n $27,241,065<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Five years later, we would be growing at 31% rate and our revenue per year would have grown 270% to $27.2million per year.<\/span><\/p>\n

Let\u2019s assume we were able to extend this through year ten. The numbers would look as follows:<\/span><\/p>\n\n\n\n\n\n
Year 6<\/td>\nYear 7<\/td>\nYear 8<\/td>\nYear 9<\/td>\nYear 10<\/td>\n<\/tr>\n
37.32%<\/td>\n44.79%<\/td>\n53.75%<\/td>\n64.50%<\/td>\n77.40%<\/td>\n<\/tr>\n
 $37,408,738<\/td>\n $54,164,022<\/td>\n $83,275,944<\/td>\n $136,986,642<\/td>\n $243,009,789<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Now, a number of companies have shown growth rates even higher than this, year after  year. But let\u2019s say that growth rates cap at around 50% per year after the eighth year. The revenue growth in the tenth year is still remarkable at a whopping $182 million per year, as illustrated below:<\/span><\/p>\n\n\n\n\n\n
Year 6<\/td>\nYear 7<\/td>\nYear 8<\/td>\nYear 9<\/td>\nYear 10<\/td>\n<\/tr>\n
37.32%<\/td>\n44.79%<\/td>\n50.00%<\/td>\n50.00%<\/td>\n50.00%<\/td>\n<\/tr>\n
 $37,408,738<\/td>\n $54,164,022<\/td>\n $81,246,033<\/td>\n $121,869,049<\/td>\n $182,803,573<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

This is the power of Predictable Revenue Growth\u2014it enables the transformation of a company into its true potential.<\/span><\/p>\n

There is a reason for setting the acceleration rate, rather than just specifying a growth rate. Companies do not become great overnight. It takes a great deal of hard work and discipline, not to mention capital and talent, to grow at a high rate. The acceleration rate is the rate at which a company commits to improving its best practices, its processes and systems, its products and services, and its people.  Each year provides the fundamentals for the next year while at the same time stretching a company\u2019s capabilities further than the year before.<\/span><\/p>\n

To be sure, setting and achieving a flat growth rate of even 15% a year is an admirable enough accomplishment. However, adding an accelerator rate on top of that 15% while at the same time setting targets for improvement over the prior year, is the difference between a good and a great company.<\/span><\/p>\n

Setting these two numbers is only the starting point. The real question is how we will execute on these numbers, which depends on two fundamental changes that must happen. As these are the most challenging hurdles that a CEO faces, it is important to first clarify why Predictable Revenue Growth is vital to the future of a company.<\/span><\/p>\n

Why Predictable Revenue Growth is Vital<\/h2>\n

Without Predictable Revenue Growth, a company’s future is always uncertain.<\/span><\/p>\n

Predictable Revenue Growth is the difference between precarious survival and a sustained leadership position in the company’s chosen market space.<\/span><\/p>\n

Companies that do not strive to achieve a predictable revenue growth (and do not know what levels of revenue they achieve by year end) are leaving their destiny in the hands of outside powers. A hiccup in the economy, a new regulatory requirement, a new competitor, or the loss of a major customer\u2014any and all of these can happen and do happen. When they do, they can have a devastating impact on company revenues.<\/span><\/p>\n

When companies commit to achieving Predictable Revenue Growth, they are forced to ask and answer some very fundamental questions that will enable them to improve their competitive advantage and market standing, which will in turn provide powerful protection from the adverse effects of outside threats.<\/span><\/p>\n

Since setting Predictable Revenue Growth requires detailed planning to achieve that growth rate, the company is always prepared for the future. Instead of being a victim to the vagaries of an unpredictable future, it creates its own knowable future and makes it far more predictable.<\/span><\/p>\n

The next section describes the process for achieving Predictable Revenue Growth and transforming into a high-performance company.<\/span><\/p>\n

How do we Achieve Predictable Revenue Growth<\/h2>\n

Setting targets for Predictable Revenue Growth is the first important step, but how do we achieve this growth rate? What is a practical process of transformation for a company that has not yet achieved Predictable Revenue Growth?<\/span><\/p>\n

In transitioning from non-predictable to Predictable Revenue Growth, a company essentially goes through four stages of performance changes\u2014Internal Assessments, Optimization,  Strategic Refocus, and Strategic Expansion.<\/span><\/p>\n

Stage 1: Internal Assessment<\/span><\/h3>\n

The first step towards achieving Predictable Revenue Growth is understanding why you are not currently achieving that.  You can find some <\/span>useful resources here<\/b><\/a> to help you get started on assessing your sales, marketing, customer service, and product innovation capabilities.<\/span><\/p>\n

This step is discussed in more detail <\/span>in this article<\/b><\/a>.<\/span><\/p>\n

Stage 2:  Optimization<\/span><\/h3>\n

No matter what we believe, we all have more untapped resources and capabilities than we think, as very few companies systematically work to efficiently use their full potential.<\/span><\/p>\n

Once we understand what hurdles are preventing us from achieving Predictable Revenue Growth, the next step is to focus on the low hanging fruits where we can make immediate gains, typically within the next 60 days.<\/span><\/p>\n

Once we have taken inventory of what we do and don\u2019t have, the process of Optimization continues to clean out what is no longer relevant, focus on what we can actually accomplish, and free up time and resources, which enables us to move to Stage 3.<\/span><\/p>\n

Stage 3: Strategic Refocus<\/span><\/h3>\n

The next step is to examine the various market segments our company is currently pursuing and to select the one we can most likely dominate within the next 24 months. Too often, we see company websites and email communications claiming that \u201cCompany \u2018X\u2019, the leading provider of\u2026\u201d However, this is a self-proclaimed status rather than one awarded by the market.<\/span><\/p>\n

What we are advocating for is true leadership demonstrated by the following elements: : near-total name recognition and market share, acquisition of key accounts for which all competitors vie, and clear leadership in revenues and profitability.<\/span><\/p>\n

The exceptionally high rewards of focusing on a specific niche are well documented, as every leading company in any sector has achieved their status by manically focusing on one (and only one) niche market. Still, making the decision to focus on a single market niche can be incredibly daunting. For various reasons, this is the hardest step for most companies to take.<\/span><\/p>\n

However, while we waste time hesitating over this decision, our competitors who have already chosen a single niche will outperform us in sales, profitability, and overall market leadership. Not only do these competitors produce more focused messaging that is clearer and more compelling to customers, they also have more targeted products and services that better address their clients\u2019 needs. This focus turns each client into a great testimonial\u2014which is far more effective at winning new customers than self-proclaimed statements of leadership.<\/span><\/p>\n

As customers, we understand this. It makes sense to us when a vendor specializes in a narrow area and has exactly what we need. For example, if we were a healthcare company looking for an accounting system, we would want a vendor that has strong leadership in providing accounting systems to the healthcare industry.<\/span><\/p>\n

And yet, when <\/span>we<\/i><\/b> are the vendors, we forget that customers want a specialist, not a generalist. Selling accounting systems in a generalized fashion would involve minimizing the differences between a healthcare and a mining company, for example, by telling both that we have exactly what they need. <\/span><\/p>\n

We would be more successful if we start with one market segment, win a strong leadership position, and then leverage that to enter the next market segment. Utilizing that strategy would make our sales, marketing, product and support organizations more differentiated and more effective. This results in better closing ratios and shorter sales cycles, which produces high revenue and profit growth rates.<\/span><\/p>\n

As scary as it seems to focus on only one niche, it is the strategy that works. Preparation is the key to addressing that fear of focusing on a single niche, and the company assessment we conducted in Stage 1 becomes the raw material for analyzing the best niche market for us to serve at this time.   The commitment is to win a dominant position within this niche\u2014at least 35-40% market share\u2014within 24 months.<\/span><\/p>\n

As counter-intuitive as it seems, the danger is typically choosing too big a segment, rather than choosing a small one. We should take care to choose a niche in which we can be the biggest fish in that pond–we don’t want to be  a minnow with no power.<\/span><\/p>\n

Once we pick our niche, we can now apply <\/span>The Four Funnels Framework<\/b><\/a> discipline to align marketing and sales and run our operations by the numbers.<\/span><\/p>\n

\"\"
SOMAmetrics Four Funnels Framework<\/figcaption><\/figure>

 \n

Niche marketing is the <\/span>necessary<\/b> and sufficient condition that must satisfied to attain Predictable Revenue Growth, and knowing which niche to pick requires conducting an internal assessment.<\/span><\/p>\n

Stage 4: Strategic Expansion<\/span><\/h3>\n

Once we successfully complete Stage 2 and have become a much more focused company, we should now be acquiring new customers at a higher speed than ever before. Sooner or later, we will reach a saturation point, as we have picked all of the ripe fruits off that tree. Whatever is left is likely not worth picking.<\/span><\/p>\n

So, how can we continue to grow at all, much less at a higher rate than before, when there is no more fruit left to pick?<\/span><\/p>\n

To continue with that metaphor, we grow by planting more trees, of the right kind, and by allowing sufficient time for these to mature and bear plenty of fruit. In other words, we must allow 2-3 years of strong investment in any given niche to realize strong harvest at the end.<\/span><\/p>\n

The work in the second year of Predictable Revenue Growth is to systematically analyze potential new market segments and ask some important questions:<\/span><\/p>\n

    \n
  1. Where do we see market segments in which our core competency appears to address the challenges these markets face?<\/span><\/li>\n
  2. Which of these market segments:<\/span>\n
      \n
    1. Has a compelling need that we can fully address with a reasonable level of investment on our end?<\/span><\/li>\n
    2. Has relatively light competition?<\/span><\/li>\n
    3. Is well funded enough to afford our products and services?<\/span><\/li>\n
    4. Offers access to the decision-making team and process?<\/span><\/li>\n<\/ol>\n<\/li>\n
    5. How do we verify these segments?<\/span><\/li>\n
    6. Which are the marquee accounts we must win to create a domino effect in that niche?<\/span><\/li>\n
    7. Which key partners do we need to start working with?<\/span><\/li>\n<\/ol>\n

      The work starts in the second year (even though we are still committed to a two-year single-minded focus on our current niche) because it takes time to do this work and come to a strong agreement and commitment on each subsequent niche.<\/span><\/p>\n

      In each niche, we must continue to implement <\/span>The Four Funnels Framework<\/b><\/a> to continually acquire new customers and remain into a dominant position.<\/span><\/p>\n

      This third phase must become an ongoing conversation within the company, year after year, so that we continuously and systematically explore new market segments we can enter. <\/span>The Four Quadrants of High Growth<\/b><\/a> provides some of the internal processes for efficiently moving from Stage 2 to Stage 3.<\/span><\/p>\n

      Some examples of companies that are excellent at this are Amazon and Google, which continually look for other markets that could use their core capabilities and always push the limits of their influence and capabilities in highly disciplined and targeted ways.<\/span><\/p>\n

      Hurdles to Achieving Predictable Revenue Growth<\/h2>\n

      Let\u2019s say we are convinced that Predictable Revenue Growth is vital to our company, the three implementation Stages make sense to us, and we are ready to start. What are the hurdle(s) we must overcome?<\/span><\/p>\n

      The single most difficult hurdle to overcome in order to achieve Predictable Revenue Growth is the commitment to <\/span>change<\/i><\/b>.<\/span><\/p>\n