The Entrepreneur

The 7 New Rules of Growth

By Jennifer Rivkin

Originally published in PROFIT magazine

Rule #1 — Ally & conquer

Global competition, a scarcity of capital and looming skills shortages are becoming major impediments to business success. Don't let them stand in your way. Companies that prosper in the fast-paced future will be flexible and adaptable in order to capitalize on opportunities quickly. Outsourcing, contracting and partnering — that is, tapping outside resources rather than building them internally — let you morph into whatever company is required to capture fleeting opportunities with smaller risks and lower up-front costs.

Contracting out work to companies or individuals, locally or abroad, can help you expand while focusing on what you do best. Any task that isn't one of your company's core competencies — such as human resources, IT, distribution, sales or marketing — could be outsourced. Overlook the opportunity and you may lose ground: a recent study by Hewitt Associates, a human resources consultancy, found that double-digit-growth companies "are more likely to have formal outsourcing strategies, make greater use of outsourcing and achieve a higher ROI from outsourcing." Plus, a report by the McKinsey Global Institute estimated that every dollar a U.S. company spends on offshoring results in US$1.12 to US$1.14 in value. "The reason offshoring has spread in North America is because it gives corporations the flexibility of managing up and down business cycles," says Alan Middleton, executive director of the Schulich Executive Education Centre at Toronto's York University. Using outside resources allows you to run lean yet bulk up when necessary.

Collaborating with other businesses, whether through strategic alliances, joint ventures or research consortia, is also an increasingly vital way to grow your company. Partnerships can provide access to new markets and technologies as well as speed innovation and product development — at a lower risk and investment than doing it alone. Jim Balsillie, chairman and co-CEO of Waterloo, Ont.-based Research in Motion Ltd.(RIM), producer of the world-famous BlackBerry, attests to the power of partnering. "Building strategic partnerships is enormously critical in whatever you do," he says. "They help you scale quickly, they complement your weaknesses, they help you leverage your strengths, they give you presence in places where you don't have [any] and they strengthen your capabilities. A good partnership strategy is imperative." RIM's partnerships have had a huge impact on its ever-growing revenue; for example, its alliances with 200 go-to-market carriers have helped the company enter more than 40 countries.

Finding partners with complementary skills — and researching their reputation, culture and capabilities with due diligence — will take work, but it's worth the effort. "If they're structured right," says Balsillie, "it's remarkable what [partnerships] can do for you."

 

Rule #2 — Be a curious CEO

You wouldn't dare outfit your staff with Commodore 64s. As a CEO, you, too, must continually upgrade. Demographic, economic and social changes mean that certain skills and traits are becoming more important for CEOs; developing them is critical.

The ability to build strong, independent teams is imperative as companies begin to take on higher-value-added activities to remain relevant. Especially if your company runs on intellectual capital, you require expert staff who have the capacity — and the freedom — to make important decisions; with so much information out there, it's impossible for one person to keep on top of everything.

There's simply no room for the command-and-control structure anymore, says Middleton. "Having an organization waiting for orders is not using probably 85% of the intellectual capability of the organization," he explains. "It's also slow and demotivating. Everything moves faster today. If you're going to wait for your front-line troops to tell you of a change [in customer feedback] and it crawls its way up a hierarchy for a little group at the top to decide what to do about it, then by the time you've implemented the solution, you've missed the window of opportunity." The modern-day CEO must be able to lead a team and clearly communicate the company's direction and core values so staff can make "executive" decisions in line with business goals.

Business leaders should also be adaptable and committed to lifelong learning. "We tell our MBAs when they graduate, 'We need to be seeing you again in three to five years'," says Middleton. CEOs with eclectic interests and innate curiosity about the world will thrive.

"The ability to digest new facts as they come quickly and incorporate them into the organization quickly are key realities," says Balsillie. "You've got to collaborate in industry things; you've got to read a lot. It's a very rigorous process being a CEO. You've got to do your homework."

In the end, it will be CEOs' foresight that determines the difference between companies that make it big and those that just get by. You must be able to make predictions about future trends that aren't necessarily obvious to everyone else, as the innovators at RIM did when they realized the power of wireless data. Now, they're looking even further ahead as competitors begin to take some market share. "We live in an era where change is constant," says Balsillie. "With your organization, you have to make bets on technology trends, industry trends, macro demographic trends ... That's why you get to eat so well as a CEO. You've got to make good bets."

If this sounds exhausting, it is. "You've got to be somebody who has very solid energy," says Balsillie. "It's not a mellow game, and if you're not up for that, don't take the job." Pacing yourself so that you won't burn out is essential. Balsillie has support mechanisms, such as his leadership team and co-CEO Mike Lazaridis, RIM's founder. "The variability and the pace of being in the CEO's chair has gone way up," says Balsillie. "You can't change the reality of what is; you just endeavour to thrive in it."

 

Rule #3 — Be the lifeguard at your talent pool

Retirement is a dream for many 9-to-5ers, but it will soon become a nightmare for unprepared business owners. Major skills shortages are imminent as the country's largest demographic cohort — the baby boomers — gets set to collect its final paycheques.

The coming wave of retirees could cause a loss of momentum that will have dire implications for business growth. You'll find it increasingly difficult to fill positions, especially the managerial and executive jobs held by many boomers. And when boomers check out, it won't just be a pair of hands you'll miss, but the knowledge and experience they've accumulated through years of work. "You can't buy it somewhere else," says Gerlinde Herrmann, president of the Human Resources Professional Association of Ontario. "[And] when you lose a high-level manager, it takes a year to ramp somebody up to be proficient and integrated into the organization, to understand your culture and build relationships. For most companies, it could be make or break to wait that long."

According to Statistics Canada, the population aged 45 to 64 has increased 36% in the past decade alone. The first wave of boomers will be turning 65 in 2011. So you'd better start preparing now. Herrmann suggests looking at where you want your company to go over the next several years and then determining whether you have the skills and people power to get there. "The same way you would say, 'Do we have enough computers? Do we have enough desks?' You must track when you're going to start losing people." Then, talk to your accomplished older employees about remaining with you beyond retirement age.

It won't be easy. The 2002 General Social Survey found that almost 70% of Canadians aged 45 to 49 said they plan to retire before 65.(In 2003, the median retirement age was 61.8 years.)How do you persuade employees to stay? Understand that people close to retirement want to work differently. Consider phasing in retirement through flexible work arrangements such as job-sharing and fractional workweeks, or hiring retired employees back on renewable annual contracts. At the very least, establish a mentorship program that helps your soon-to-be-retirees prepare their successors. "If you're not considering baby-boomer retirement already, there will be somebody else eating your lunch," warns Herrmann. "It would be like a company without computers. It isn't a matter of having a competitive edge. It's a matter of staying in the game."

 

Rule #4 — Seek the fountain of youth

Generation Y — born in the 1980s and '90s — accounts for 19% of Canada's workforce, and that number is rising. In order to grow your business long term, you must uncover a new set of skills needed to attract, retain and motivate the 20-somethings of today and tomorrow.

Gen Y as a group is short on commitment, thanks to an abundance of local and global job opportunities. A study by Hays, an Australian recruiter, shows that just 2% of Gen Y, also known as the Echo Boom, view a career as a job for life, compared with 12% for their senior generations. It also discovered that, on average, echo boomers anticipate staying with an employer for two to four years, compared with six years for their older colleagues. If you're not careful, you'll watch a steady stream walk out the door.

If you are able to engage Gen Yers, your return on investment could climb off the charts. They're generally great multi-taskers, not to mention techno-savvy, highly educated, intelligent, team-oriented and adaptable. The key is figuring out what drives them.

The echo boomers, says Carolyn Martin, co-author of Managing Generation Y, want mentoring relationships as well as challenges and opportunities for continued learning; they know they won't be lifers at a company, so they want to build their careers by choosing firms that will provide them with marketable skills. Once they feel they've peaked, they're gone. Frequent personal recognition and incentives for reaching mutually determined goals are also important, says Martin; an annual 3% raise won't cut it. More immediate gratification is in order for the generation that's grown up in a high-speed world. Being an organization that's socially conscious won't hurt, either. According to the Hays survey, "72% of Generation Y will not apply for a role with an organization if they do not believe in what it stands for." Finally, echo boomers want flexible benefits, HR policies and, especially, hours that help them maintain work/life balance.

But what about your older employees? A blanket strategy won't work, warns Michelle Ventrella, human resources director at Pivotal Integrated HR Solutions in Mississauga, Ont. Make your workplace as flexible as possible by allowing choices wherever you can(a menu of ΰ la carte benefits, for example). "It's about awareness of who's in your group," explains Ventrella, "and then making the effort to find out what's more likely to be a hit or miss, as well as recognizing individual differences within a [generational] cohort."

Examine these issues now — before you're desperate. "[These strategies] are more of a philosophy of business and a commitment to workers than just a training program or a recognition program," says Ventrella. "They're cultural shifts that take time." In the end, making these changes will give you a competitive edge and allow you to focus on growth rather than dealing with empty chairs.

 

Rule #5 — Keep up with kids

Understanding young people has never been easy, but marketing to today's under-25s is vital to your business. Seriously, dude.

"It's important to keep an eye on this group because if it's not a viable market now, it's going to be in the future," says David Morrison, author of Marketing to the Campus Crowd. That's because it forms the largest generational cohort since the baby boomers.

Even more important than the oodles of money Canadian kids have to spend — $20 billion a year in disposable income, reports a 2005 study by Youthography Inc., a consultancy in Toronto — is Gen Y's long-term potential. "A positive experience with them now could end up being a hundred positive experiences over the course of their lifespan as consumers," says Max Valiquette, president of Youthography. "Gen Ys can be extremely loyal to brands that are good to them and deliver on promises. Brands that find ways to stay relevant can connect with young people over a long period of time."

This will take an appreciation of Gen Y's unique point of view. They're more skeptical of big brands and big marketing campaigns, and are increasingly sophisticated consumers because they've grown up with a huge amount of choice while having more control over their purchases than their predecessors.

"Generation Y is radically different in terms of language, needs, mindset, goals and in the ways they need to be communicated with," says Morrison. He suggests supplementing conventional marketing by subtly selling to Gen Y where they are: the Internet, campuses and concerts, for example. "If you can create an environment, through clever placement, where the market feels as if they're discovering the brand on their own," says Morrison, "you can get an underground buzz going that can be highly effective."

Take Burlington, Ont.-based West 49 Inc., for example. Targeting no one but echo boomers, the retailer of board-sports equipment and apparel enjoyed revenue of $87 million in 2004, up 753% over the previous five years. Grassroots marketing has been essential to West 49's success. The company sponsors professional athletes as well as 150 amateur skateboarders, and each of its 64 stores has a discrete budget with which it runs contests and sponsors local events or charities.

Internet marketing is also an important way to reach Gen Y. "Online is a very effective way of talking to our audience on a cost-per-thousand basis," says Brent Laderoute, West 49's head of advertising. "Our customers spend a huge amount of time online, so we really put a lot behind the website." Retailing almost takes a back seat on West49.com, which prominently features content that can engage members of the Y demographic and keep them coming back, such as a skate-park locator and music download section. "The Gen Y consumer is looking for something that relates to them," says Cindy Mielke, West 49's director of marketing. "They don't just want to be spoken to; they want to be involved." To this end, contests, rewards programs and clubs are all effective methods of marketing to echo boomers.

West 49 stays abreast of the wants and needs of young hipsters by monitoring message boards on west49.com. Before the company launched its All Access Pass loyalty program, for example, it operated a message board that asked participants to dream up their ultimate loyalty program. "We took their advice and designed it for them," says Laderoute. "Not what we thought was right for them, but what they told us was right for them."

Ultimately, it's authenticity that will make or break your firm in the eyes of echo boomers. If they catch a whiff of deceit, they'll bolt.

 

Rule #6 — Brand and deliver

The global economy is increasing the competitive clutter, making it more important than ever to stand out. Branding is the way to do it — even if you're not Pepsi or Apple. A strong brand simplifies a customer's decisions by instantly conveying a product's or firm's distinct value proposition.

A study conducted by Toronto-based Interbrand Canada Inc. determined that brand value accounts for an average of 33% of the intangible assets of publicly traded companies. "A huge amount of a corporation's value today is tied into their intangible assets," says Bev Tudhope, Interbrand Canada's CEO. "And brands are intangible assets that have real, quantifiable economic value."

Branding has been a major driver of growth for Toronto-based Truition Inc., which presents its portfolio of e-commerce services as a premium-priced offering for large companies. "We've made it a priority that everything we put out there — every product that we release, every new website that we build for a customer — is synonymous with the brand message and the philosophy that we're trying to get across," says Mike Hennessy, director of marketing. Hennessy sees evidence of his brand's impact in the high-end clients Truition has been able to attract, including Dell Financial Services, Major League Baseball and Revlon. "It's very important for us to communicate the type of brand identity that we do in order to attract those enterprise-level customers who have a lot of choices and also may be a little leery of dealing with an organization they may not know," says Hennessy. "We've gained a reputation that only a good brand can provide."

A 2001 study by Accenture found that a familiar, reputable brand is the most important preference of online business purchasers by a wide margin(followed by service, price and variety). And business buyers who don't purchase on the Net are likely to be influenced equally by brand(they're human, after all). "People don't make decisions just with their heads; they use their emotions," says Tudhope. "Powerful brands appeal to people on both levels. Whether it's B2B or B2C, all the same principles apply."

Fortunately for budget-challenged businesses, branding isn't all about beautiful logos or pricey ad campaigns. "A brand is the experience that people have when they interact with your organization," says Tudhope. "It's the total presentation of your business and your proposition." You must figure out what makes your company different and valuable, then clearly communicate it in every dimension of your business.

 

Rule #7 — Look eastward and upward

China and India's economic expansion creates some real threats, but even more opportunities for Canadian companies. Recognizing how changes in the Asian market will affect your business is crucial to building a healthy bottom line.

"Businesses ignore the rise of these new economic giants at their own peril," says International Trade Minister Jim Peterson. "I've been saying to every Canadian who will listen to me that each Canadian business needs a China and India strategy." These countries are set to become your biggest competitors, but they can also act as instruments to help you compete in the world market.

Rapid growth in Asia shows no sign of slowing down. A report by the Goldman Sachs Group predicts that by 2041, China could surpass the U.S. to become the largest economy in the world; India could be third-largest. These countries are an enormous new source of direct competition. Thanks to lower wages, they can produce goods and provide services at a fraction of the cost achievable by Canadian firms. Two million Indians graduate from college each year, and most speak English; China and India together graduate 380,000 engineers per annum. The workforces in both countries are developing stronger technical and managerial skills. India is already a major destination for service outsourcing(mostly back-office services and call centres)and is becoming a hub of outsourced R&D and software design. "We've become complacent in a fairly mature industrial society," says Glen Hodgson, vice-president and chief economist at the Conference Board of Canada. "There are billions of people in Asia who want to get where we are, and they're prepared to work longer and harder. So we have to work smarter."

That's where taking advantage of opportunities afforded by these emerging markets comes in. Strategic relationships and joint ventures in Asia are useful for gaining market intelligence and overcoming the challenges of doing business there. Plus there are opportunities to provide a diverse array of services to Asia, including engineering, consulting, telecommunications and R&D.

Using Asia as a source of cheap labour is becoming critical for Canadian companies. While wages are rising in the coastal areas of China, moving farther inland should provide low costs for decades to come. The potential for long-term growth in India is even higher. By mid-century, India will have hundreds of millions more young workers than China because of the latter's one-child policy. Using both countries as sources of inexpensive labour — in manufacturing or the offshoring of white-collar work — can help you cut costs, boost productivity, bring products to market faster and focus on higher-value activities such as technical innovation. Falling telecom costs and the Internet make offshoring more feasible now than ever.

Then there are Asia's massive consumer markets. "If you're trying to reach new consumers, with the changing demographics in North America and Europe, Asia is kind of like virgin turf," says Hodgson. Although poverty is rife in Asia, its middle class is growing rapidly and already numbers several hundred million consumers.

Start by doing some research. Industry Canada's Virtual Trade Commissioner service is helpful. Then determine your Asia strategy. If that includes sourcing from or selling to the Far East, many organizations and business councils can provide you with contacts. The Canadian government plans to do its part, as well. Says minister Peterson: "We're putting more forces [i.e., trade commissioners] on the ground in both India and China to help smaller businesses form the connections for trade investments or strategic relationships."