On Growth

'The Curse of Growth' and How To Avoid It

A viable plan for growing your IT services business should consist of much more than a bigger revenue target.

• By Mike Harvath
• October 30, 2014

One of the forces of nature with which IT services executives contend is what we call the "curse of growth." It's the realization that the strategies that got you from point A to point B will not be the same ones that get you from point B to point C.

We'll ask executives with an ambitious growth imperative right off the bat: Where are you now, and where do you want to be in three years, five years or beyond? The expressed goals are generally revenue-based. A $5-million company may want to get to $10 million, a $20-million company might aspire to $50 million, and a $50-million company looks longingly to $100 million. All well and good, but that's about as far as they've considered the basis of their long-term objective.

Ask the $20-million-company executive, for example, where they are today in terms of basic metrics, such as margins and EBIDTA, and they'll rattle these figures off in a nanosecond. Then ask if they have any idea of what a $50-million company looks like in terms of key financial metrics, headcount, service-line offerings, locations and so on. Many will fumble a bit and finally say they really haven't delved that deep into their analysis. It's our experience that knowing what a $50-million company looks like will help the $20-million-company executive figure out the right strategies to get there.

In our case, Revenue Rocket is partnering with Service Leadership Inc. to give IT services executives the ability to peer into the future to get a glimpse of what their company might look like five years hence. Service Leadership, among other things, collects, analyzes and maintains the IT industry's longest-running and most widely used financial and operational benchmark. The company's database is drawn from the records of thousands of companies across 10 different IT company profiles with an inexhaustible litany of metrics.

With this partnership, Revenue Rocket will be able to do what we call a horizontal and vertical benchmarking analysis. Horizontally, we'll be able to determine where the $20-million company presently sits relative to its peer group in terms of key metrics. We'll help determine if the company has the right foundation with which to embark on an aggressive growth plan. Vertically, we'll be able to identify (broadly) what a company of its desired goal looks like at various revenue milestones. The strategies for getting the $20-million company to $35 million may well be different than the strategies employed to go from $35 million to $50 million.

Because the strategies might have to evolve over time, we recommend a portfolio-of-initiatives approach to managing your company's growth. In my September column ("Building a 'Portfolio of Initiatives' Is Key to Partner Growth"), I referenced a McKinsey article in which the author championed the idea that CEOs "think about corporate strategy not as a portfolio-of-businesses, but as a portfolio-of-initiatives aimed at achieving favorable outcomes for the enterprise. Usually these initiatives will be organized around themes focused on achieving particular aspirations." Key among them is creating a portfolio-of-initiatives that comes to fruition over a period of time, such as:

• Initiatives that contribute to current earnings, which we've categorized as organic growth, building upon your current source of revenue and your current core competency.
  
  
• Initiatives that mature in two to three years; think M&A, new verticals, complementary service lines and so on.
  
  
• Initiatives that mature in three-plus years; here we're venturing into new territory as we're beginning to see IT services taking the next logical step to creating and selling their own IP.

So, the challenge -- or the opportunity -- for managing through the "curse of growth," is to know where you stand horizontally among your peer set, know what your company will have to look like vertically at various revenue milestones, and then (and only then) creating a portfolio-of-initiatives that will get you from point A to point B, point C and all the points beyond.

More Columns by Mike Harvath:

• Building a 'Portfolio of Initiatives' Is Key to Partner Growth
• IP Development: Beware of These Potential Pitfalls
• Column Archive