EXPONENTIAL GROWTH IN HIGH GROWTH MARKETS - WILLIAM EASTMAN

"Right Markets & Executive Management of Money"

Introduction
One theme consistent in Season 3 is the station's becoming your CGO - Chief Growth Officer for Hire, the underlying role of the Network. All of my shows: Growth Community, Building in Front of You, Your MLM Empire, Economics for Owners, the Self Managing Organization, and Creating a Consulting Business - everything centers on how to use the IBGR Network for business success. 

​Our relationship with the listening audience of entrepreneurs and owners: 

• Provide INSIGHTS that are useful
• Provide TOOLS that work
• Provide RESOURCES that saves time and money
• Make a FINANCIAL impact on the business 

That is what is meant by Looking at IBGR as your CGO - your virtual Chief Growth Officer.

Last week we tackled "Leveraging Alliances with Better Players". This week shifts the conversation to the essence of fast and sustainable growth - exponential returns. If you're Living The Life, then JOIN me in the community and let's talk.

LISTEN > ENGAGE > APPLY

Objectives - The WHY
Element 4: Exponential Returns. View your company as a stockbroker or financial adviser - How well do you utilize rare resources - money? How well do you maximize its return? What are your return from sales, your return on margin, and your return on invested capital? It is one thing to identify those opportunities, it is another to produce it. Why not start with Profit and work backwards to costs and stop running a charity masquerading  as a business. Example: Cisco has averaged a ROIC (Return on Invested Capital) of 35% for years regardless of the economy.

Key Issues - Owner Perspective:​

1. How is Market Value Measured in your Industry?
2. What is your ROIC – Return on Invested Capital?
3. How Fast can you Achieve Positive Cash Flow?
4. What is your EBITDA – Earnings Before Interest, Taxes, Depreciation & Amortization?

What You Need to Know - The WHAT
Exponential Returns
Element 4: Exponential Returns
Zero to a Dominant Business Strategy is this month's Report and the fourth element is Exponential Returns.

Exponential Returns is about financial performance, it is a convergence point for measuring the effects of your business strategy and all the decisions required to build an executable plan. The fast growth companies in our study were all able to achieve exponential growth, what separated the good from great was their ability to translate it into exponential returns.

Our focus in Element 4 Exponential Returns is on how to measure success and determine long term performance. It starts with your financial software and encompasses how your financial support (CPA, CFO, etc.) should be measuring and reporting to drive strategic decisions. Unless you have an extensive financial background, get the help – it is worth what it cost…

What You Need to Do​​ - The HOW
Understanding your Industry's Market Value Metrics is imperative – identifying where to invest in the company. Every industry is different so determine yours as early as possible. My recommendation is to hire a business broker to come in and determine today's sale price. The results of this report will provide you with critical information about: current value and how it was calculated and is worth every dollar. You now know where to invest time and resources to grow the business especially if your long term plan is to sell. The following represents a “generic'' list used by most business brokers. Use it for informational purposes only.

• Return on Sales = Net Income (before Interest and Tax) divided by Sales. This measure is helpful to management, providing insight into how much profit is being produced per dollar of sales.

Return on Gross Profit = Revenue minus Cost of Goods Sold. Gross profit indicates how efficiently management uses labor and supplies in the production process. Cash Flow Valuation = EBIDTA plus or minus owner’s salary, discretionary, single occurrence, or non-cash expenses. This is the cash that flows through a company over a period of time after taking out all fixed expenses Cost of Sales Inventory = Cost of Goods Sold divided by Average Inventory. Used to determine how efficiently the company uses finished goods inventory and the impact price has on sales. 

Your ROIC – determining how well the company is using it's money to generate returns. This was one of the critical measures from our study – the best of the best just didn't grow fast, they provided great returns to the owner and shareholders. Once you understand how your company is valued, this metric is a measure of how well those decisions lead to positive financial results.

• ROIC = Net Income minus Dividends divided by Total Capital. It is used to assess a company's efficiency at allocating the capital under its control to profitable investments.

Achieving Positive Cash Flow – not subject to accounting tricks, it is about pricing, volume of sales, and managing the accounts payable and receivable cycles. This is the most important metric in start-ups and small businesses, you typically go through several phases to achieve sustainable positive cash flow. It starts in Growth Stage II with a total focus on sales. In order for your company to survive it's infancy, you must achieve sufficient and predictable cash flow. Sufficient to pay everyone including yourself with something remaining for reinvestment in the company, and predictable so you can budget. Most small businesses don't spend money when it is the most opportune, they spend it when it is replaced by new money arriving. This type of budgeting never optimizes the allocation of capital.

• Fast and sustainable growth firms achieve positive cash flow before moving from a Small Business classification to a MidLevel Enterprise ($20m in revenue, 60 employees) without loans, lines of credit, etc.

Your EBITDA – separates cash flow from profitability. This is the last of the 4 and a normal metric except for a twist. Here you are looking at the balance between expenditures between running the business and longer term investments.

• Expenditures for selling, general & administrative expenses and research and development is equal to the difference between gross margin minus +20% EBITDA. Fast and sustainable growth firms achieve this ratio before moving from a Small Business classification to a MidLevel Enterprise

The Game Plan:

1. Create and sustain high gross margins early – the target 60%
2.  Contain expenses to +20% EBITDA
3. Become Cash Flow Positive early and quickly
4. Reinvest gross margins (30% of retained earnings) to fund growth

We are your single, one stop source for business success, period, end of story.

1. ​Listen to the #ownr.life Series 
2. JOIN the Community of Commerce - A Network of Entrepreneurs for Entrepreneurs
3. Show Up Next week

Make sure you leave some thoughts in the comment section below. I am interested in continuing the conversation.

OWNR.05.3G