The importance of innovation, planning and funding for sustainable business growth

| January 28, 2020

Australian businesses looking to achieve growth must do so in a planned, controlled, and fully funded way to avoid letting their attachment to the concept of growth drag the organisation down, according to the latest thinkBIG report by RSM Australia.

thinkBIG has been run for close to 15 years and focuses on issues affecting the small and medium enterprise (SME) sector. The latest report in the thinkBIG series is titled Going for Growth.

Patrick Flanagan, director, business advisory, RSM Australia, said growth for its own sake can be negative and it’s important for businesses to ensure that they pursue growth in a strategic and targeted way to ensure that it’s sustainable.

“When organisations pursue growth blindly, they can drown under the weight of unexpected costs and challenges.”

One of the key challenges growing organisations can face is the need to ensure the business’s systems are capable of the increased throughput required as the organisation grows. It’s common to see organisations frantically trying to ‘backfill’ these capabilities but it’s far more effective to ensure that capacity is there before pursuing growth opportunities.

This includes financial systems. Often, the cost of growth is substantial and putting capacity in place ahead of actual growth can result in several years of profitless growth. It’s important to plan for that and ensure the organisation has the cash reserves to soften the financial impact.

Patrick Flanagan said, “Sustainable growth requires a vision and a clear understanding of the business’s addressable market, as well as its capabilities and what’s required to achieve the desired growth. Innovation is the key word here. This requires a constant focus on R&D, even if it’s informal, to find new markets to address and new ways of addressing existing markets.

“RSM Australia is seeing a quantum shift in innovation and new ideas coming through from businesses in the SME space. It’s easier now than ever to start a business because new-economy businesses don’t require the same inputs for rent, labour, and fiscal capital. Some of the world’s biggest businesses are virtual and, while labour inputs are still required to scale those businesses, the relative factors of production have shifted at a quantum level.”

The economy is currently favourable for organisations looking to grow. However, it’s important to be aware of the risks as well as the opportunities for growth. While Australia holds the current record for the country that has gone the longest period of time without a recession (27 years), much of the country’s buoyancy comes from China’s economic growth and the natural resources sector. The challenge going forward is how to do business successfully, innovate, and stay agile.

Patrick Flanagan said the addressable market in Australia for many businesses is relatively small so it’s important to have a global play if organisations are going to see real growth.

“However, when expanding globally, organisations face a very different regulatory environment with different cultural, financial, and structural requirements. It’s essential to understand exactly what will be involved in expanding, and to choose international partnerships extremely carefully.

“There have been some high-profile Australian success stories in the last few years, especially in new-economy businesses where the cost of expansion is relatively low. However, for every success story there are 10 failures. And, it’s those failures that can teach organisations positive lessons regarding how to grow in a way that suits their specific business model.

“To avoid having to learn these lessons painfully, organisations looking to grow should seek professional business advice and obtain recommendations that are specific to their business. This can help minimise risk and maximise the chance of success.”