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Up Front | Sep 2007

Are You Ambitious Enough?

Lesson 10: Work Smarter.

Last time, we looked at steps that owner-managers can take to move toward profitable and sustainable growth. In this final piece, we draw the threads of this series together under the theme of working smarter, not harder.

Let go of day-to-day operational activities and stop meddling. The three basic tasks of management, as defined by the late writer Peter Ferdinand Drucker, are to (1) manage today's business, (2) improve today's business, and (3) create a new business for tomorrow. Our research suggests that most owner-managers spend up to 90% of time on the first task and virtually none on the last. Yet, the potential to add value to the business is in inverse proportion to that time allocation. Owner-managers add value to their businesses when they identify and plan for the challenges of the future. This may be hard for the practicing ophthalmologist to accept, as they are immersed and working in a business with little time to improve and create upon it. Time must be allocated to thrive, and other models for service provision (eg, taking on an associate) must be considered.

Focus. We have observed two primary market-related errors made by many businesses that are actively seeking growth. The first is premature diversification, or being seduced into new market sectors, products, or services before the core business is fully established. This has two frequent consequences. First, existing customers suffer neglect, and second, the risk profile of the business dramatically changes. As a colleague bluntly put it, "If someone asked you whether you really intend on selling things, but you do not fully understand the people you have never met, would you still go ahead?" Sort out core activities before jumping on the bandwagon and adding new services, because there is a risk of suffering all around.

The second mistake is to compete solely on price. Many start-up businesses/practices get going on the basis of undercutting the existing competition. They teach their customers that they are cheap. When expanding, however, they take on all of the normal overhead of running a business—and find their margins unacceptably squeezed.

At that point, the business/practice is trapped. Their customers buy purely on price, so to carry on as usual means that there is no money to reinvest in the business. If they increase prices, customers will simply buy from the next cheap and cheerful supplier. Most independent businesses that grow successfully do so by identifying and occupying profitable niches. They teach their customers to buy on value—however defined—and there are thousands of profitable niches out there. There are clear lessons for surgeons in the refractive surgery arena. How many groups who have competed on price have survived long term? Those that have maintained pricing (and profits) and not entered a price war have survived. Ophthalmologist-led refractive practices invariably provide higher value than perhaps commercial chains. The key is to believe this and get patients to do so, too.

Be a profit grower, not a busy fool! One of our most successful Cranfield Business Growth and Development Programme (BGP) participants sold his business last year for several million pounds. When he came into the program, his profits were zero. One year later, he was making a 1.5 million net. Among the many things he did was to turn the bottom line into the top line. In all his management accounts, the first line was net profit, the second was gross margin, and the third was sales. Pretty soon, everyone got the message.

The lessons I shared with you over this year are what I have learned from working with some of Britain's most talented and successful entrepreneurs: people such as Karan Bilimoria, of Cobra Beer (London), Angus Thirlwell, of Hotel Chocolat (Hertfordshire, UK), and Lara Morgan, of Pacific Direct (Bedford, England), to name but three. Since 1988, nearly 1,000 ambitious owner-managers have sought to realize their personal and business aspirations through the BGP. Growing a business profitably is not easy, but if you get it right, the rewards are huge and include a more profitable, valuable, easier to manage business that is a lot more fun!

For more information on BGP and other programmes for owner-managers, visit www.som.cranfield.ac.uk/som/groups/enterprise/credo/index.asp, where you can also register to attend one of our regular free briefing seminars.

Note from Sheraz Daya, Chief Medical Editor
I personally wish to take this opportunity to thank David Molian for his contributions over the last 2 years. I attended Cranfield, and they have been great revision. David has volunteered his time to contribute these valuable articles to CRST Europe and helped several colleagues to look at their practices from a different point of view. The program at Cranfield—although business oriented—has much to offer, and I personally benefited tremendously. Thank you, David. We at CRST Europe wish you the very best in your future ventures!