Sunday, May 24, 2015

Lets tackle inequality NOW

A graph of the UK's National Minimum Wage over...
A graph of the UK's National Minimum Wage over time. Information taken from The Low Pay Commission - Historical Rates. Low Pay Commission. Retrieved on . (Photo credit: Wikipedia)
I’m not an economist but it seems to me that we have a great opportunity, here in the UK and across the developed world, to improve the lives of millions of people by simply increasing the minimum wage and actively promoting the payment of a “Living Wage”.

The Living Wage is an hourly rate of pay, calculated according to the basic cost of living in the UK.
It provides an acceptable standard of living for employees and their families and a benchmark for employers who are able to pay more than the National Minimum Wage.
There are two Living Wage rates, the UK Living Wage and the London Living Wage. New Living Wage rates are announced in November each year and published by The Living Wage Foundation - amongst others.

The current minimum wage in the UK is £6.50/hour and the Living Wage (set independently and annually) is £7.85/hour and £9.15/hour in London

I have worked in, evaluated and invested in many companies and right now, I feel that the circumstances could not be better — nor the arguments so cogent — for companies to pay a living wage and for the Government (and the Low Pay Commission) to raise the National Minimum.

We can afford some inflationary pressures:
The spectre of deflation hangs over many economies, although the implications are not fully understood, some rises in the cost of production and services can certainly be passed on to consumers.
Much of the additional wages paid will be re-cycled through the economy by consumer spending, fuelling much needed growth in demand.

With unemployment rates low and employment levels at their highest, there is real competitive advantage to be gained by companies being seen as good payers and attracting the best workers.
Paying a living wage (not just the minimum statutory) can have positive effects on staff wellbeing and team morale.
It can mean increased productivity, reduced absenteeism, better retention and improved quality of work.

Front line staff, like shop assistants for example,  are absolutely key to the performance of the business. The recruitment training and retention of these people comes at a huge cost and their motivation, how they feel about their jobs is crucial to the delivery of the brands' promise.

Clearly putting the salaries of all low paid workers up will add to the cost burden of such organisations and this is where the Government’s role in setting minimum wages at a “Living Wage level” is needed to level the ‘playing field’ for companies competing with one another.
The counter argument runs that many companies will be forced to reduce their work forces (or invest in increasing productivity?) — the alternative is of course to raise prices.

With a Conservative government in power, a move to push for further increases in the minimum wage could be seen not as ‘anti-business’ but simply the right thing to do — there are too many in our society who despite having jobs, struggle to get by from day to day.
Most of the readers of this post will be working for companies that already pay a Living Wage — and a rise in the statutory minimum will make no impact. We can however do a lot to influence others.

This is what we can do, today:
1. Ensure that we and our service subcontractors are paying a living wage (eg cleaning companies)
2. Lobby Government to increase the minimum wage and to give a commitment to keep its increases well above inflation, closing the gap on the Living Wage.
3. Use Social media to spread the message @livingwageuk, become accredited to the Living Wage Foundation #LivingWage

Monday, March 30, 2015

UK Election - its importance to the Innovation Economy

It's that time again. Elections in the United Kingdom (or disUnited Kingdom if you prefer).
It's the time when Politicians and the Media seem to be on the edge of hysteria, the time when love/hate relationships become strained due to ill-judged pronouncements and sorting out who believes in what is extremely difficult. 

I'd be preaching to the converted were I to stress the importance of all those eligible casting their votes.  I consider myself privileged to being able to do so as a UK citizen, having qualified some 36 years ago. Like many who were not born here, I'm profoundly grateful for the opportunity to live in this open, tolerant, free society and to be able to contribute in some way to it. 

It seemed like that to me, even on our arrival in the UK in December 1976 - a time of depression, 3 day weeks, strikes, the winter of discontent etc.

What a transformation we've been through! From the "sick man of Europe" to the heart and soul of Enterprise and Entrepreneurship in Europe in just a generation.  
During this time, I've led the building of 2 successful companies as Entrepreneur, invested in more than 50 startups in the UK ...(and a fair few in the US and Europe) and helped Saul in the formation of Seedcamp (Europe's premier accelerator program) so I have 'lived' this transformation through its ups and downs.

There is still much wrong, still too many under-educated, under-employed, too many clinging on to past glories. Too many of our leading FTSE 100 companies have yet to embrace or recognise the impact of the digital revolution and are under-investing in transformation.
Nevertheless, the cultural shift towards Enterprise and all that it's capable of delivering has been profound.
For this, some credit must be given to successive Governments who have helped create the framework in which we now operate.

My own experience of involvement in "Tech City" has provided some insights into how governments can enhance or hinder progress. 
When Tech City was conceived -or rather named- in November 2010, I was one of the sceptics. After all, Silicon Roundabout had been named by software designer Matt Biddulph, of Dopplr (later sold to Nokia) in the Moo shared workspace on the Old Street Roundabout some years previously - in 2007. Those of us in the startup tech scene had seen the cluster building rapidly for at least 5 years. We'd been banging the drum for London as a global centre for Tech development since the turn of the century.

It seemed to us "insiders" that the Government was jumping on a bandwagon, using their large megaphone to drown out the other noise and claim the credit for itself. All of which it did very effectively.
Tech City sat inside a framework of a larger ambition which seeks to make Britain "the best place to start and build a business" - the fact that Europe's brightest and best keep setting up here must mean we are on our way to achieving this aim.

Tech City was simply a brand, a name to give a set of policies designed to encourage enterprise,  get government out of the way and encourage a mutually supportive community. Some of these policies have had a profound effect.
Tech City proved to be a forum in which No10 (and 11) could listen to people in the industry from which many of the policies were derived.
Some examples of these policies include:
  • The EIS scheme has attracted many millions to the startup world by channeling tax incentives via angels directly to individual companies - far better use of funds than some government agency investing in companies who can't obtain funding elsewhere. 
  • The entrepreneurs visa continues to bring talented, enterprising people to these shores
  • Entrepreneurs tax relief. ....10% capital gains tax for founders
  • Encouragement of the LSE to create the "fast growth sector" 
  • Promoting successful entrepreneurs as role models
  • Facilitating regulations enabling new Fintech models such as Funding Circle, Transferwise, CrowdFunding platforms, P2P lending to be developed. 
  • Enabling - (or at least not blocking) sharing economy platforms. These platforms release entrepreneurial activity and utilise under-used assets
The UK has a lot going for it - with or without Tech City and the close interest shown in it by David Cameron and George Osborn. Much would have been achieved anyway thanks to:
  • The attractiveness of London as a city for young people
  • The UKs geographic position between East and West  ( which accounts for much of the City's pre-eminence too)
  • Having the world's business language, English
  • Having 3 of the world's top universities 
  • A strong creative industries base ....film, books, music, arts, advertising AND
  • Being part of the European Union 
Britain has to continue to embrace new technologies and new business models, adapting regulation as rapidly as possible to accommodate them. We have to continue to be outward looking and to compete globally for talent as well as investing heavily in developing our own. 

The enormous challenge of the New Industrial Revolution which is bringing greater prosperity but destroying many jobs in its wake can only be faced by a rapid acceleration of our education programme and in this regard, the introduction of computer coding into primary schools is a welcome step as is the acceleration of independently governed free schools.

So, however you voted on May 7th, this is a plea to all political parties to recognise the role that the tech sector plays in driving growth and prosperity and the importance of building on the enterprise culture now so well established in Britain. 

Further reading:

Monday, March 09, 2015

SecondHome - changing the way we work

One of my passions is Architecture.
I'm a firm believer that one's environment is fundamental to state of mind and informs our attitudes and thought processes.
Today, this seems pretty self evident but its remarkable for how long work (and home) spaces had been designed for minimum cost, maximum return without sufficient thought to how effective and productive the users of these spaces could be with imaginative space design.

Shared workspaces have proliferated, clusters are recognised as drivers of innovations, serendipitous meetings in the corridors, kitchens and coffee bars increasingly result in positive collaborations.

Now Rohan Silva and Sam Aldenton with the active support of a few hand picked investors and Selgas Cano, Madrid based architects have created SecondHome with the mission to move the whole concept of "Cluster" on a decade.

And what a debut SecondHome has made!
The members love it, the press loves it, Selgas Cano have been selected to design this year's Serpentine Pavilion, even the in-house restaurant gets rave reviews ..eg:

But its not just the design of SecondHome which has been so appreciated. The team that manages the East London based first SecondHome are really engaged with the members, nothing is too much trouble - all delivered in a relaxed, friendly and efficient way.

Its hard to put one's finger on exactly what it is that makes you feel happy inside SecondHome.
It could be the 1000 indoor plants. I could be that every chair and lamp in the place is of mid-century design and is different from every other one.
Or perhaps its the use of colour, light, transparency.

The permanent studio members, in SecondHome, Hanbury Street include
US companies like: Survey Monkey,  Task Rabbit,  Artsy ,  Four Square,  General Assembly,  Blue State Digital;
Creative Agencies like: Fuelled, Visualise, Rooster Punk and Klein & Sons and
Home grown startups like: Kovert Designs, Chineasy and Signal all find they're in good company with Santander's $100m Fintech fund and Christian Henandez's VC firm WhiteStar Capital

Read what the press have said about SecondHome...


Second Home offers a different way of working... There is something hugely seductive about Second Home... You want to work here." - RIBA Journal


"Tucked away inside a former carpet factory in trendy east London is a futuristic office space that London's most innovative companies all want to join." - Business Insider


"It is sometimes said that the more virtual the world becomes, the more the physical is needed as its counterweight. Second Home is an elegant demonstration of this idea." - Observer architecture critic Rowan Moore


"Located in a former carpet factory in Shoreditch, Second Home is a collaborative workspace, featuring transparent acrylic walls, over a thousand plants and a so-called 'flying table'." - Dezeen


"A new co-working paradigm." - Architizer


"How 1,000 plants, a greenhouse bubble and Stella McCartney could change the way we work." - Fast Company


The experience of moving through the building is delightful... Second Home is a calming and wonderful space to be in." - Architectural Review (attached)

Sunday, December 07, 2014

Growth champions are different from other businesses

I recently had the opportunity of working with Margaret Exley of SCT consultants and we started talking about the characteristics of hyper-growth companies and how they differed from others.
Margaret's client list is the who's who of giant British business - a decent chunk of the FTSE100. She advises them on improving board effectiveness generally and specifically on increasing their strategic focus.

She has conducted a very interesting piece of research which has many lessons for the slow growing giants as well as those early stage companies aspiring to becoming hyper-growth businesses.
The paper, entitled Designed to grow has not been made public before and is reproduced below by kind permission.

Thank you Margaret.

How growth champions differ from other business and what it takes to become one
Summary of research

The research surveyed 214 companies across the USA and Europe to identify high growth companies, and what makes them different. The overwhelming majority of senior executives said organic growth was a primary goal for them and their organisations. However, only 12% had exceeded their organic growth objectives in the last three years. Barely half rated themselves as having been effective in achieving growth in the same period and a majority believed that creating growth from within will become harder in the next three years.

We identified 23 companies who are growth champions. All had consistent year on year growth as a distinguishing feature. Most had consistently delivered growth in revenue, net operating income and share price over a period of five years, at twice the rate of the rest.

The growth champions have six practises or types of behaviour which clearly distinguish them from the rest. Differences between the growth champions and the rest are clear, marked and statistically significant.

These practices do not include some of the things which have been said to be important by consultants and others in the past, eg creating radically new products and services, risk taking, having an internal venture capital process, or financial incentivisation.

The growth champions transcend sectors, geography, size and business model. There is a mixture of public and privately owned businesses and the growth practices are key differentiators. They work together to give a distinctive footprint. Practices include: creating clarity on sources of growth and well articulated profit models, combined with disciplined execution of those strategies backed up with strong measurement and feedback to the team.

Growth champions focus on a few things and make clear trade-off decisions. They are able to grow because they have few management levels, develop their own leaders and create a culture of continuous adaptability. They are disciplined, focused and minimalist rather than risk-taking opportunist or complex. Not only are the practices mutually reinforcing, but they reflect a clear difference in priorities between growth champions and other businesses. They put companies at a significant competitive advantage. They can be measured and they can be learned.

As a result we are now able to assess companies against the high growth practices, identify where they are weak and focus on the specifics needed to drive organic growth.

Our starting point

Profitable growth is central to the creation of any company’s economic value, providing the cornerstone for ongoing competitiveness. In turn, successful company growth fuels the wider economy and therefore has broader benefits for society. But in the Conference Board’s recent study of the top priorities for CEOs (the CEO Challenge Survey, 2006) over 650 CEOs rated sustained and steady top line and profit growth as the top two challenges for them in 2006.

We have been looking at the characteristics of companies who achieve high ratios of organic growth, ie growth which does not rely on acquisition. Whilst much has been written about the key to organic growth, most of the previous work is prescriptive, ie it suggests a particular strategy or solution to the problem of growth.

We set off in our study with a more open mind. The questions we sought to answer were: are there common practices between high growth companies that transcend sectors, business size, positioning in the business cycle and history?  And can such practices or behaviours be clearly detected and therefore potentially learned?
Much has been written about mergers and acquisitions, and about inorganic growth as a key to success. Less has been published on organic growth.

In a 2004 ‘Industry Week’ article, James McNerney, Chief Executive of 3M, was quoted as saying “In today’s world, our overall business objectives are to be simultaneously strong in operating excellence and unusually strong in organic growth”.

In a 2002 survey of 120 British firms, Edengene found that organic growth topped executive agendas, though few companies were succeeding in achieving it. A subsequent study by Marakon in 2004 showed that for 59% of senior managers worldwide, organic growth is their key issue.

Many of the books written on organic growth focus on the reasons why organic growth fails to take root in companies. Problems range, for example, from the absence of entrepreneurial leadership to poor incentive systems that don’t support growth goals and include the inability to capitalise on the synergies which exist across a company. Those management theorists who have a point of view about how to grow companies, usually promote one or two initiatives with little detail about what they are actually doing. Some talk about innovation, others advise focusing on cultural transformation.

The study set out to:
1.          Learn what organisational practices best support organic growth, how they relate to one another and what types of companies are employing them;

2.          Determine which practices can be tied to actual financial growth;

3.          Develop guidance for executive teams who are trying to grow from within, so that they can most cost effectively focus their time, energy and creativity in the right ways.

Distinguishing exceptional financial performance

In launching this work, a team assembled data from a literature review, and from our own experience which was distilled into a set of 35 practices that purport to create organic growth.

In addition to questions about the 35 organic practices, a small number of questions were included to characterise the role and importance of organic growth in the participating companies and their industries. Three financial criteria were assessed: the extent to which participating companies are falling short, meeting or beating their organic growth goals for:

·            sales;
·            earnings;
·            cashflow.
The sample included CEOs, CFOs, and other members of the executive team and data was gathered by a combination of face to face interviews and questionnaire completion.

In some cases participation was delegated to one level below the executive team. All the respondents in this study are senior executives in prime positions who know what their companies are doing to grow from within, how those actions are supporting organic growth, and what is actually being achieved.
The data was collected in 2005 and 2006. From the data given and as a first screen we created a pool of growth champions, ie those who reported that they were beating expectations for the last three years on all three dimensions. Once the database was complied, published financial information for the publicly traded companies was reviewed as a second screen.

In this way we were able to corroborate the financial performance of the companies in our sample over the period. Furthermore we examined revenue, net operating income and share price over the previous five years. By doing a further check in this way, we reduced by two the number of companies who we identified as growth champions, ie those who had grown consistently over the period, giving us an identifiable group of 23 such companies.

A majority of organisations in the total sample (56%) believe that creating organic growth will become harder in the next three years. However a similar proportion (50%) believe their own company’s capabilities to drive organic growth are not getting any stronger. So not only is growth important, not only is it a struggle to achieve, but it is predicted to get harder.

It is not surprising therefore that given the right conditions, many large businesses choose to grow inorganically through acquisition rather than building their core business. The bad news is that many of these acquisitions then do not deliver good financial performance and therefore may not be the solution to underlying financial growth that companies hope for.

A large proportion of the sample (59%) had articulated specific, quantifiable goals for organic growth for which senior leaders were being held to account. A further 30% reported that they had tasked their managers to grow the business organically. It is not that companies do not seek to grow, or task their leaders to focus on growth, but some are inherently incapable of delivering growth. Most companies have strategies for growth and task their leaders to deliver them. However the challenge is to ensure that delivery.

Profile of participating companies

We surveyed a total of 214 companies across the USA and Europe. We believe this to be the largest investigation into organic growth to date. Participating companies included some of the world’s largest and most successful businesses, eg. Procter & Gamble, as well as some of the smallest, eg Piatkus Books (a small publishing firm with a turnover of $15 million).

Further checks were undertaken, having identified the growth champions, to see whether there was any revenue size or industry bias among the 23 in relation to the rest of the sample.

No revenue size or industry bias was found. Growth champions can be large or small companies, and can come from almost any sector as can be demonstrated by the charts following.

Participating companies – industry breakdown

Ninety-three percent of companies in the total sample indicated that organic growth is critical to the success of their companies, even though only half report that organic growth is the dominant growth strategy in their industry. Only 51% of companies rated themselves as having been effective in achieving organic growth in the last years on all three criteria (sales, earnings and cashflow).

The growth champions

Only 23 of the 214 companies had consistently exceeded their organic growth objectives. For these companies who answered the questionnaire in 2005, we covered the five year period leading up to that year. For those who answered the questionnaire in 2006, we covered the five year period leading up to 2006.

Therefore we were able to select those companies who had shown consistent growth over five years in all three dimensions, ie revenue, net operating income (profit after tax and interest), and share price. The performances for each are shown below in the following tables. They show that the growth champions on average hit more than twice the growth rate of the other companies over the period, for all three dimensions.

Five year revenue performance (annual increase)

                                           Year 1-2          Year 2-3        Year 3-4          Year 4-5     5-year av.    
Growth champions
Other companies

Five year net operating income performance (annual increase)

                                      Year 1-2               Year 2-3        Year 3-4          Year 4-5      5-year av.    
Growth champions
Other companies

Five year share price performance (annual increase)

                                      Year 1-2               Year 2-3        Year 3-4          Year 4-5        5-year av.    
Growth champions
Other companies

This data therefore supports the self-reported financial performance of the companies concerned.

The growth champions not only have tremendous revenue growth performance, but they also accomplish it without compromising net operating income. This should also put to rest the argument that a company has to sacrifice profitability in order to grow.

Furthermore the market rewarded the publicly traded growth champions, compared with those in the other companies, for their performance. In this way financial performance feeds through directly to share price.

Size doesn’t matter

One could speculate that very large companies may be more severely challenged than smaller companies in implementing certain practices due simply to their organisational complexity. An alternative hypothesis is that the larger the company, the more financially able it may be to deploy particular practices to grow from within. Neither case is true.

Executives were asked to rate the extent to which their companies are engaging effectively in each of the 35 practices. The statistical correlation between their deployment of each of these practices and company annual revenues was close to zero. One important conclusion therefore is that the size of the company is irrelevant to its ability to act in a way that supports organic growth.

Therefore, based on the self reported scores for growth, the demographic comparisons with the balance of the sample, and most importantly the comparative financial results among the publicly traded companies, the label ‘growth champions’ is more than reasonable.

Having identified this pool of high growth companies, we then examined the best practices for organic growth.

Best practices for growing from within

The executives rated each of the 35 organic growth practices on a five point scale in terms of the extent to which their company is deploying the practice. The questions asked included the strategic direction and deployment of resources, the basic work patterns and how people work together, culture and commonly well regarded behaviours such as innovation, and team working, as well as people aspects, ie the characteristics of those who are responsible for organic growth.

For each of these factors we compared the scores of the growth champions against the rest. There were a small number of growth practices which were consistently highly rated, and when tested the differences between the growth champions and the rest were statistically significant.

There were six practices which were statistically different at the 98% level of confidence. That is to say it is almost impossible that the differences occurred by chance. The chart which follows shows the results for the growth champions and the rest of the sample.

Key practices of growth champions

The growth champions have clear and well articulated profit models which are linked with strong metrics and feedback. They are very clear on their sources of growth and make effective trade-off decisions about where to invest for growth.

These businesses focus on a few things and this focus is amplified by a capability to engage in disciplined execution at all levels. These practices are noticeably much less present in the remaining 189 companies, who put effort into a variety of other practices.

It is also worth noting the practices the growth champions do not pursue. Very few of them focus on building radically new products or services. They stick to what they know. They do not support multiple business models simultaneously, preferring instead to operate a single clear business model. Just over half report that they foster innovation, but this is not significantly different from the non-growth champions. Few of them have an internal venture capital process or share resources across the organisation to fund initiatives.

The top six key practices

The four enablers

There are also a series of enabling practices which support the six high growth practices identified above which are statistically significant at the 95% level of confidence. These are four further practices which are statistically different between the growth champions and the rest and which relate to the way the companies are organised and led.

1.          The first of these is that the growth champions build leaders to grow from within. They put considerable effort into building leadership capability which will focus on organic growth.
2.          A significantly larger number of them also have fewer levels of management.
3.          They engage in cross-cutting forums to drive innovation.
4.          Finally, the growth champions have developed a culture of adaptability. They actively encourage their employees to be adaptable and flexible to a changing environment.

The ten distinguishing practices of the high growth companies, which are statistically different in those companies from the remaining lower growth businesses, are set out below.

The growth practices

Growth champions
% practiced
Non-growth champions
% practiced
Top six practices

1.      Create clarity on sources of growth
2.      Clearly articulate and have well understood profit models
3.      Engage in disciplined execution at all levels and promote excellence in execution
4.      Make effective trade-off decisions about which opportunities to invest in
5.      Have strong metrics and feedback loops
6.      Focus the business on a few initiatives
The four enablers

7.      Build leaders’ capabilities to grow from within
8.      Develop a culture in which people readily adapt to change
9.      Maintain fewer levels of management to enable faster decisions
10.   Engage in formal, cross-functional or regional forums to drive innovation

A further analysis was performed to examine the average inter-correlation of the ratings of these ten best organic growth practices. The inter-correlation was high and statistically significant. This supports the premise that these practices are contingent upon one another.

They go hand-in-hand, and are mutually reinforcing and supportive.

In CB Richard Ellis, a worldwide real estate business, for example, every year the company examines which businesses to enter and exit. They avoid getting into what might appear on the surface to be related business lines (eg maintenance services) because they recognise they are not expert in those businesses. They are clear on their sources for growth and they steadfastly refuse to invest in businesses unless both can work synergistically with existing CBRE businesses. They also strive to keep things simple.

Brett White, the CEO, explained “We don’t spend weeks in seclusion working on strategic plans because the business changes faster than we plan”. Brett and his colleagues have focused their management team on six key objectives which have remained consistent for many years. People understand the sources of growth and the financial metrics that count. Furthermore, they focus on building leaders. Every year thousands of people (employees and customers), attend their in-house university for up to a week.

However CBRE does not spend a lot of time investing in new products or going on management retreats. Instead, CBRE executives focus their business meetings on tactical initiatives with a goal of keeping things practical and action oriented. Brett reports that “We are very empirical. We’ve cut out the nonsense and focuses on what makes money. The question is always “How does the action you are taking today tie to revenue margin and EBITDA?”.

The final component of CBRE’s success is the disciplined approach to measuring business performance. The company has an established comprehensive set of financial metrics which track the growth performance of each manager and which are visible to all. People are measured on top line as well as bottom line growth.

The growth blueprint

The diagram below summarises the growth champion ‘blueprint’, ie the distinctive footprint of the 23 companies which exhibited outstanding growth. These companies are focused and very selective, and not radically innovative. They execute very effectively because they are so focused and have simple structures and move quickly to respond to their environment. The culture is disciplined and adaptable. These are not organisations that ‘let a thousand flowers bloom’, but they do expect people to continually adapt. The various elements of the distinctive blueprint are mutually supportive and together fuel organic growth. The elements are inter-correlated – ie they move together and are inter-dependent.

The growth champion blueprint

The $60 billion Procter & Gamble company (P&G), now the world’s largest consumer goods company, is a good example of this. Its health, beauty care, household and food products are used an estimated two billion times a day by consumers around the world.

Its success in sustaining growth is based on continuous attention to detail, sound processes and conservative decision making. Disciplined leadership, disciplined execution and remaining faithful to the consumer is the key to P&G’s success.

Amongst the growth champions, the organisation arrangements are simple, have few management levels, and strong metrics and feedback loops. P&G has reorganised from five divisions into three to simplify its operations and is quick to eliminate brands that aren’t profitable and growing.

P&G is remarkably centralised and aligned towards a set of shared goals. Divisions don’t head off on their own. Shared processes have a lot to do with this, as does the fact that P&G executives are grown from within; they know each other and they understand the procedures that need to be followed. While some companies would find this centralisation a barrier to creativity and innovation, P&G uses its structure to do just the opposite: force innovation where it is required and cut off unsuccessful investments early on before they drag the division or company down.  

Similarly, if you understand your profit model and focus on a few key initiatives, this gives a solid basis for having strong measures and feedback loops.

Texas Capital Bank was founded in 1998, and targets small to mid-size businesses, providing the full gamut of banking services. Its revenues grew 22% from 2002 to 2003 and another 29% between 2003 and 2004. In the same period, operating income grew 16% and 49% respectively.

Texas Capital takes a P&L view of all its work: each customer relationship has the full P&L. Each person controls and bills his or her own business and this creates a real sense of ownership and an incentive for individual initiative. Each month everyone sees their performance and that of their colleagues. Texas Capital has not lost anyone in the top 80% of performers, and the bottom 20% of performers get the message and weed themselves out of the organisation. The bankers’ relationships however focus not on short-term revenue production but on long-term profitability. Because of this long-term measure, a banker’s incomes may drop, but over the first few years of their time with the bank their income will exceed that of competitors.

The relationship between sales, earnings and cash growth

We looked at the organic growth practices to see the extent to which statistical modelling might show how combinations of the ten best organic growth practices correlate with the three financial performance outcomes against which executives rated their companies.

We looked at the extent to which the participating  companies are falling short, meeting or beating their growth objectives for sales, earnings and cashflow, and explored whether there was a specific link between any particular practices and these aspects of financial performance. The regression analysis identified subsets of the ten best organic growth practices that have statistically significant correlations with different financial outcomes. The results were interesting and are shown in the table below.

This analysis shows that sales growth is associated with disciplined execution and a culture of adaptability. Earnings growth is linked with good decision making and focus, whilst cash flow growth is strongly related to measurement and promoting excellence in execution.

These findings provide insights for organisations who are interested in launching internal efforts to grow particular financial outcomes. However, while different practices correlate more strongly with one outcome than another it is important to remember that the practices themselves are contingent on one another.  Leaders who focus their companies on growth and who pay attention to the ten growth practices are likely to see the needle move on all three dimensions.

The key practices which drive financial outcomes

Practices that best support growth in sales
Practices that best support growth in earnings
Practices that best support growth in cashflow
Disciplined execution at all levels
Focus whole business on a few initiatives
Maintain strong metric/feedback loops
Develop a culture in which people readily adapt to change
Make effective trade-off decisions about investment opportunities
Promote excellence in execution


In summary, there are clear and distinctive practices which differentiate growing companies and which are mutually reinforcing. These exclude many which the literature says should fuel growth. They transcend size, sector, and history, but the growth is consistent year on year.

The practices are characterised by focus, simplicity and discipline and dispel some misunderstandings about the importance of, for example, risk taking, radical innovation and involvement of high potential leaders in growth opportunities. Not only are they mutually reinforcing, but they reflect a clear difference in priorities between growth champions and other businesses.

In short: these companies have deliberately chosen this set of practices and have become good at them. The practices put them at a significant competitive advantage. They can be measured and they can be learned.