From July 2007 the market went south until March 2009, then bounced for six months until September 2009 and since then it has continued to rise at a modest pace but with major spikes caused by political and economic bumps along the way. In fact, today many people feel that there is a disconnect between the market and the economy with the gradual rise being because of emerging markets and commodities.
The question is how do you feel ? Most business owners say that the economy feels like a market that is 20 percent-plus lower and after three and a half years of recession they feel tired. The big question going forward is “How do you create growth in a flat market?” The answer “Go back to basics.”
This article is part of our Back to Basics campaign, with two series, Building a Growth Platform and Creating Growth in a Flat Market. Over the next few years, businesses must build a strong platform in preparation for economic growth. Essentially this means having the right number of people doing the right jobs with the right level of skills. This article covers the right number of people. Having the right number of people is a concept we call "capacity planning" -- calculating the exact number of people you need in each business team to maximize your profit level.
Most companies tend to grow by simply adding a few more people during busy times. They add one, add another, and add one more. Eventually the senior team realizes the business used to make more money when it was smaller.
The right staffing levels are profitable. Teams make a good profit at certain staffing levels. Then, in response to productivity demands, they need to add more team infrastructure, which means more people. These are typically back office jobs. It’s only once they’re all in place that the businesses can recruit more people into sales roles to create more revenue growth.
Over time businesses will grow, plateau during platform building phases, and then move into a growth phase once more. Profit levels will remain low in a platform phase while the business is investing in people to create future growth.
In Shirlaws, for example, we know that four people in a team will make money. With seven people, we lose money. With 12 people, we make money again and with 17 people in the team we lose money and so it goes on.
A law firm had 174 staff and planned to grow to 191 by the year end. By calculating their capacity numbers and profit ratios, we showed them that 191 staff would make less money than 174.
In a big economic dip, many businesses start to lay off staff and reduce team sizes. At the same time they’ll be focusing on cashflow across the recession rather than on the strategic issueof having the right number of people to create profit.
Nigel Hartley is a Business Coach with Shirlaws Coaching, Shirlaws is an international coaching firm that works with businesses in three areas-revenue, productivity and strategy, and we focus not only on commercial aspects of doing business, but on the cultural factors that affect human interaction as well. You can contact Nigel at 707 573 7154, firstname.lastname@example.org or www.shirlawsonline.com. This article was developed from copyrighted material developed by Darren Shirlaw, founder of Shirlaws, and is our opinion and not official advice on market trends.