There comes a time for many an Irish business when a strategic decision needs to be taken on where it is going. In some cases, the owner might seek to benefit from the value they have built in the business by selling it. In others, it can be to take it to the next level of growth and development.
Standing still really isn’t an option, according to Mazars partner Lorcan Colclough. “In today’s fast-moving business environment, if you are not moving forward, you are going backwards. That particularly applies in sectors like technology. If you have a first-mover advantage as a result of a technology you have developed, you’ve got to move and grow as quickly as possible before you lose that advantage.”
That need for growth applies equally to firms in slower-moving sectors. “Companies are faced with rising costs and may also have to deal with legacy debt built-up during the pandemic,” he points out. “They are going to find their margins squeezed very quickly. They will need to either find a way to differentiate their products and services or find new markets to grow their business. Also, there is a war for talent and people want to work for dynamic growing companies. Businesses which aren’t growing will face problems recruiting and retaining staff.”
But the growth option may turn out to be a lot easier said than done. To begin with, the skillsets and personal traits that have brought the business success in the past may not be the same as those required to achieve future ambitions.
“Entrepreneurs are passionate, determined people who have a great belief in their own abilities,” he notes. “That’s a good thing because they need to have confidence in their decision-making, but it can also be bad if they are not listening to advice or taking on board alternative viewpoints when making those decisions. When a firm gets to a certain size, the owners need to listen to advice, whether it comes from internal or external sources. Also, sometimes when there is a dominant entrepreneur in charge, the company can lack the depth of expertise and experience at management level to take the business forward.”
Difficult decisions
This can lead to difficult decisions. “These are the people who have brought the company to where it is and replacing them or bringing in others in more senior roles can be tough, but there is often no alternative.”
One of the other key issues which businesses on a growth path must deal with is strategy setting. This may not have been a particular priority for the firm in the past but becomes crucially important when embarking on international expansion or other strategic growth initiatives.
The best SMEs and growth-oriented businesses are those that operate like the multinationals with real rigour around reporting and measurement
“Many business owners insist on following a strategy built on their personal experiences up to that point, and they are often oblivious to the efficacy of wider market strategies,” Colclough points out. “When growth necessitates expansion into new markets, as it often does for Irish businesses, companies often assume that the model they’ve successfully built their domestic business on will perform equally well overseas. This is a common fallacy. Companies need to identify the best market entry model, understand the competitive landscape, as well as the prevailing business, legal and tax environments. In most cases, this will require the services of advisers with practical on-the-ground experience of the target markets.”
Understand the risks
Business owners also need to understand the risks associated with overseas expansion. “Take expansion into the US, for example,” he notes. “That’s an enormous market and you can get through an awful lot of capital entering it. Or they might decide to expand into the UK. What does that mean? You need to understand what success looks like. You need to have the right market entry strategies. You need to analyse what you are delivering, how you are delivering it, and the market you are delivering it to. You don’t want paralysis by analysis, but you do need a thoughtful, considered strategy. And you need metrics to measure objectively what you are doing. The best SMEs and growth-oriented businesses are those that operate like the multinationals with real rigour around reporting and measurement. They are also the ones that can change course when things are not working out as anticipated or hoped.”
Finance
And then there is the matter of finance. “It is important to have the right capital structure and financial headroom to fund growth. But many businesses will have limited financial capacity at present. That might mean bringing in an investor or partner. They might not only bring in finance, but expertise as well. It’s a good time to raise capital, valuations are strong at the moment. They say that equity is blood, but it is better to own 60 per cent of something that is expanding than 100 per cent of something that is not growing or even in decline.”