Business Strategy

Going for Growth – Good or bad?

Growing a business into a successful enterprise is a tough call, requiring perseverance, leadership skills and a lot of critical thinking. Having got it established, the next stages of expansion and growth are equally difficult, but growth of some sort is essential for your business if you want to survive.

In the brewing business there is a prevailing thought that successful growth means broaching the 5000HL barrier & storming through to production levels of 20,000HL or more.  At this point, you can get the economies of scale and become successful.  Anything less is not good enough!

However, recently we have had two examples of reasonable size breweries who raised significant funds on Crowd Cube (£900,000+) in order to storm the barrier and jump start the business, but who have since then got into serious problems.

·      HopStuff have had to rein in their expansion plans due to management issues

·      RedChurch, who raised money a year ago & then went in administration owing the tax man around a million!

So growth maybe is not that easy, even with a load of cheap money (Crowdfunding by the way, is cheap money!)

It’s becoming a much more competitive market place out there in the Craft beer market place. International Craft Brewers have started to muscle into the market and we’ve seen that many smaller breweries are struggling to keep pace. Passion and enthusiasm can only take you so far in a crowded market place, and these attributes are by themselves not enough to make your business successful.

But maybe we need to move away from simply thinking of GROWTH in terms of turnover. As the old adage goes, “turnover is vanity, profit is sanity!”  

Growth can also be achieved across a broader range of points:

1.     Grow in profitability – focus on growing your profitability, step by step. Control your costs and add value to achieve higher margins

2.     Growth in your Brand – invest in the brand to grow its value, see the results in easier sales, greater ability to achieve higher prices and wider distribution

3.     Growth in distribution – grow your distribution in market reach and penetration, widen your base of outlets

4.     Growth in your team – focus on skills and expertise development which increases productivity

5.     Lastly, growth in turnover and sales.

Whichever growth mix you choose, it will take management.

The first four routes to growth are less about heavy investment and more about management focus.  They take detailed skills that not every brewery management team possess. Why would they? Starting a business with passion and enthusiasm can get many people to a certain level.  But unfortunately, they are not the only attributes you will need to drive a business to the next level.

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That’s one of the reasons why some small and larger breweries fail, the business grows beyond the skills of the management team.  Those who go on to succeed from this position, identify the skills gap that needs to be filled.   Then the business owners will look for external advisers/mentors to help develop the strategies, plan the growth and manage the issues.  All sorts of businesses do it, in all sort of industries, essentially they hire in the missing skills for the management team.

Lastly, it’s important to note that growth in terms of turnover this can be done slowly step by step or dramatically by using additional funds (usually loans, crowd funding etc). Step by step is the safe way, can be unexciting, slightly boring – but safer.

Going for the quick growth has its issues; people often forget that all the costs come upfront! Your rent jumps up, you need time to install the equipment, the people and then hopefully the sales come.  Unforeseen delays are hard to predict and often slow down cashflow.  So before the investment you need to be sure the sales will come.

This requires clear strategy, SMART Targets and clear accountability to achieve results!

In entrepreneurial businesses the mantra – It takes twice as long as you think it will, and equally costs twice as much as you thought - proves to be true, more often than not!

 At The Business of Drinks we do not believe there is one simple solution on how to grow a business. It’s all about playing to your particular strengths and managing your business correctly. We have breweries around the £250,000 level making a profit (albeit small) and others moving to the £1million & above, all profitable. Why?

·      Because they have moved beyond passion & enthusiasm to the skills required to run a real business.

·      They manage the costs on everything and produce consistent quality

·      They understand that cash is critical, and their product has to sell for a good price, otherwise why make it?

·      They have a clear strategy and a plan to achieve their objectives

And

·      Because they are not too proud to call in external support when they hit issues they cannot resolve.

 The Business of Drinks works with business owners helping them to focus on the business issues and thus achieve more sustained long-term growth and a clearer road map for growth.

 Do get in touch for an exploratory conversation, if you’d like to discuss your route to growth with one of our advisors.