ADVISORY AREA / 01
Direction & Growth
Most established businesses do not suffer from a shortage of possible growth.
There is another geography worth entering. Another acquisition that could accelerate scale. A customer willing to buy more. A product adjacent enough to look sensible. A partnership that appears capable of opening a market which would otherwise take years to penetrate.
Individually, many of those opportunities are perfectly credible.
The harder issue is what happens when an organisation starts saying yes to them.
Revenue can rise while customer concentration becomes uncomfortable. International expansion can increase the addressable market while leaving the company dependent on a local partner it does not control. An acquisition can add EBITDA and remove the management capacity needed to integrate the previous one. A major customer can be highly profitable while quietly influencing product decisions for the rest of the business.
For several years, none of this necessarily looks like failure. Quite the opposite. The company is growing.
If the growth plan works, what sort of company will be
left behind?
What should this company become, which growth
genuinely helps it get there, and what should
management be prepared to refuse along the way?
The distinction matters. A larger company is not automatically a stronger one.
01
Direction
What should be materially different about the enterprise three or five years from now? Not only revenue: economics, geographic exposure, capital requirements, management structure and strategic position.
02
Growth Quality
What does each additional unit of growth do to the company underneath the revenue line? Some growth compounds. Some has to be continually bought. Some quietly creates obligations management will discover later.
03
Choice
Which attractive opportunities should not be pursued? This is usually where strategy becomes difficult.
01 / GROWTH TARGETS ANSWER LESS THAN BOARDS SOMETIMES THINK
Growth is often easier to agree than direction.
A board can agree that revenue should move from £400 million to £650 million without having agreed much about strategy at all.
The disagreement usually arrives one level lower.
Should the existing business be pushed harder? Should management accept lower near term margins to establish a new market? Should growth be acquired? Is the company trying to increase volume inside the current model or deliberately move towards a different one?
How much customer concentration is acceptable? How much capital should be committed before a new geography has proved itself? What happens if the most attractive acquisition becomes available while management is already halfway through an operating model change?
These are not questions that a percentage growth target resolves.
Two companies can arrive at exactly the same revenue figure and have created very different institutions.
One has broader margins, recurring income, low concentration, proprietary capability and cash available for the next move. The other has additional turnover, more debt, greater complexity and six customers management can no longer afford to upset.
Both can report growth. Only one may have improved its strategic position.
The useful question is not simply how much growth the plan produces. It is what the enterprise becomes while producing it.
02 / THE COMPANY CAN BE GROWING AND MOVING IN THE WRONG DIRECTION
The wrong growth can improve the numbers and weaken the company.
Consider a business that has spent three years telling its board and investors that it is moving towards higher value recurring technology revenue.
The story is plausible. Investment has been made. The technology is good. The market appears to understand the ambition.
Then look at where the new revenue is actually coming from.
The fastest growing customers want custom implementation. Large contracts require more people. Each important account asks for another modification. Margins remain respectable because the commercial team is good at pricing the work.
Revenue rises.
The company is succeeding commercially while rebuilding the labour intensive business model it intended to escape. Nothing in the monthly sales report necessarily announces that contradiction.
Or take the opposite situation. A specialist services business wins a very large multinational customer. The economics are excellent. The client becomes 11 per cent of revenue, then 18 per cent, then 27 per cent.
Nobody made an irrational decision. Yet the next time the company considers changing a product, increasing a price or entering a market the customer dislikes, the strategic reality has changed. The customer now matters differently.
There are many versions of this: an overseas distributor that becomes the only credible route into the region; an acquisition which requires the best operators in the company to spend eighteen months integrating somebody else's systems; debt that makes sense against the base case but changes the company's tolerance for experimentation; a strategic investor whose money is attractive but whose presence makes another partnership politically difficult.
None of those consequences necessarily makes the original decision wrong. But they belong in the decision before management commits, not in the explanation afterwards.
03 / QUALITY OF GROWTH BEFORE QUANTITY
Not all revenue deserves the same strategic value.
When an opportunity is material enough to influence the direction of the enterprise, the headline revenue figure is only the start of the analysis.
Margin matters, but so do working capital, cash conversion, implementation cost, recurring income and the amount of investment required before value appears. Does the economics improve with scale, or does every additional customer recreate the same work?
Economic Quality
Does the growth strengthen the position the organisation intends to occupy or simply make today's business larger? A profitable opportunity can still pull the company back into a category management is trying to leave.
Strategic position
What reliance is being created: customer, partner, platform, geography, regulator, technology or key person? Dependency is not always a reason to reject growth. It should be visible before management accepts it.
Dependency
How much scarce organisational attention does the opportunity consume? Capital can sometimes be raised. Executive capacity is more difficult to manufacture quickly.
Management load
Does each new unit of growth require the organisation to solve the same problem again, or does the model become easier to scale as it develops?
Repeatability
If the initiative succeeds, what becomes possible next, and what becomes harder? Some growth creates cash and closes choices. Other growth creates the ability to take larger, better decisions later.
Optionality
What will this decision make easier or harder later?
The largest transaction today may not create the greatest enterprise value over five years.
04 / DIRECTION BEFORE OPPORTUNITY
Direction has to exist before opportunity starts writing it for you.
Strategic opportunities rarely arrive according to the planning calendar.
A founder becomes willing to sell. A government announces a programme. A competitor withdraws from a geography. One of the company's largest clients asks for support overseas. An investor makes an approach. A distribution partner appears at exactly the right moment.
Management has to respond.
The danger is that a succession of individually sensible responses becomes the strategy.
A company ends up in Saudi Arabia because a partner happened to be available. It acquires a business because the owner was willing to transact. It enters a category because one major customer asked for it.
Three years later, somebody presents the portfolio as though the organisation deliberately designed it.
Sometimes it did. Sometimes the strategy is simply the accumulated history of opportunities management found difficult to refuse.
Direction should provide a standard against which those opportunities are judged.
For one organisation, the objective may be to reduce project revenue and build contracted recurring economics. Another may need to reduce customer concentration before entering another market. A founder led business might want management depth that makes performance less dependent on the founder. A group approaching a future transaction may deliberately prioritise evidence of repeatability over the fastest available revenue.
Those are useful descriptions of direction because they affect decisions.
We want to become a £1 billion company” does not tell a CEO whether to sign the next £50 million customer.
05 / THE DIRECTION ARCHITECTURE
A direction becomes useful when it changes what management does.
There is no strategy template that removes judgement from these decisions. There are, however, several things that need to be made explicit before a board can distinguish an attractive opportunity from the right opportunity.
01
Enterprise destination
The first question is not how large the company should become. It is what should be different about the enterprise if the strategy works.
That may include a different revenue mix, higher recurring income, stronger margins, less concentration, greater ownership of technology or intellectual property, more institutional management, a different geographic footprint, less capital intensity or a more defensible market position.
The destination should be specific enough that leadership can tell whether a profitable opportunity actually helps to create it.
02
Sources of growth
Where can growth realistically come from: more from existing customers, higher pricing, new propositions, different customer groups, acquisition, partnership, distribution, international markets or capital deployment?
Each source carries different economics, dependencies and execution requirements. The objective is not to find the route with the largest theoretical market. It is to understand which combination creates the strongest enterprise.
03
Strategic constraints
Every strategy is constrained by something: capital, leadership, regulation, technology, brand permission, talent, operational capacity, supply, partner dependency or customer concentration.
The mistake is allowing those constraints to become explanations after the plan misses. They should shape the plan before it is approved.
A strategy which requires capabilities the organisation does not possess is not automatically a bad strategy. It becomes one if management has no credible way to build them.
04
Growth quality
Which opportunities improve the enterprise rather than simply increasing activity? This is where the economics, strategic position, dependency, management load, repeatability and optionality are considered together.
05
Portfolio choice and sequence
At some point, strategy becomes subtraction. Which initiatives receive capital? Which are sequenced later? Which are stopped? Which should never have entered the portfolio?
Sequence often matters as much as selection. A business may be right to enter a new geography and right to acquire a complementary capability. Doing both simultaneously may be wrong.
The strategy is not always about choosing one route and rejecting another. It may be about determining which decision creates the conditions for the next decision to become better.
06
Strategic freedom
Finally, management should understand what choices remain if the plan succeeds.
The fastest route to a target can also be the route that leaves the company least able to change its mind. A stronger strategy considers the value of preserving the ability to respond when the forecast is wrong.
Because eventually, some part of it will be.
06 / THE PORTFOLIO PROBLEM
A strategy can contain nothing but good ideas and still be impossible.
This problem appears regularly in ambitious organisations.
The company should enter the new market. It should probably make the acquisition. The legacy technology does need replacing. The operating structure has become too complicated. A large new proposition could genuinely change the growth trajectory. The cost base also needs attention.
Each case is convincing.
Then look at the names beside each programme. The same six people appear repeatedly.
The CFO is supporting the acquisition, transformation programme and refinancing. The COO is expected to fix domestic execution while creating an overseas operating model. The chief commercial officer has a new proposition to launch while defending the core customer base.
The strategy looks diversified on a presentation. Its execution risk is concentrated in a handful of executives.
The portfolio has an economics of its own.
It consumes capital. It consumes leadership. It creates simultaneous operating disruption. It asks the organisation to absorb a certain amount of change.
There is a point at which adding another good initiative makes the strategy worse.
Market entry
Commercial case can be sound while local leadership, regulation and working capital compete with every other major programme.
Acquisition
Standalone economics can be compelling while integration consumes the same senior team needed elsewhere.
Transformation
Necessary change can become unmanageable when it is layered onto simultaneous growth and transaction activity.
Core
performance
The existing business still has to serve customers, protect cash and fund the strategy while management attention is pulled elsewhere.
Strategic freedom
A portfolio of individually attractive initiatives can still be an unexecutable strategy.
Deciding which attractive idea waits is often harder than rejecting a bad one.
07 / AN ENTERPRISE DECISION
£1.15bn
Annual turnover
1.8bn
Four year board ambition
3 routes
International expansion, acquisition and deeper domestic growth
2 targets
1 constraint
One capability acquisition and one larger geographic acquisition
The same organisation has to execute every decision
The initial decision looked unusually attractive
Consider a UK headquartered industrial and business services group producing approximately £1.15 billion in annual revenue.
It is profitable. Debt is manageable. Customers are generally satisfied. The company has credible specialist positions rather than one dominant market.
The board has spent much of the previous year considering the next stage. A revenue ambition of approximately £1.8 billion within four years has been agreed. It is demanding but not absurd.
Three routes are receiving serious attention.
Route A - International Expansion
Several multinational customers already use the group in the UK and have operations in the Gulf and North America. They have asked whether the company could support them there.
This is unusually helpful for a market entry because management would not be starting with a blank sheet of paper. There is identifiable demand. Relationships already exist. The Gulf in particular offers significant long term potential.
Yet conversations with management reveal something the headline market analysis does not.
The company has no regional operating leadership it is willing to rely upon. Regulatory and contracting requirements differ materially. A local partner could solve some of the access problem, but management has not agreed how much economics or customer control it is prepared to give away. Working capital would arrive before meaningful revenue.
The opportunity is attractive. The organisation is less ready than the market deck suggests.
Route B - Acquisition
At roughly the same time, two acquisition opportunities appear.
One is a specialist technology enabled operator producing around £95 million of revenue. Its financial contribution alone is useful, although not transformational. What interests management is the capability. The group currently buys part of that capability externally. Owning it could improve margins inside the current business and support international customers later.
The second acquisition is larger: approximately £170 million of revenue, good management and an established position in a geography the group wants. The investment case looks compelling on a standalone basis. It also creates a much larger integration burden.
Both acquisitions could theoretically be completed. So could the international programme. The company has access to debt. An investor has also indicated an appetite to support a more aggressive strategy.
At this point the growth plan begins to look unusually strong.
There is only one problem.
The organisation has not yet considered what happens when all of those decisions have to be executed by the same company.
The least exciting option changes the analysis
There is another source of growth. It has been receiving less board attention because it looks less transformative.
The existing UK business.
A deeper review shows that several major customers buy only one or two of the group's capabilities. Contract structures vary unnecessarily. There is pricing inconsistency in parts of the portfolio. Some project activity could plausibly move onto longer term contractual arrangements. There are also operating improvements management has postponed because attention has been focused on the next stage of growth.
The domestic opportunity will not produce the most impressive headline. Its economics are much harder to ignore.
It requires less incremental capital. It uses capabilities the company already possesses. Cash arrives faster.
And if the company improves those economics first, part of the international expansion can potentially be funded from stronger internal cash generation rather than new capital.
That changes the board discussion.
Not because the international thesis was wrong. Not because acquisition was too risky.
Because the value of each option changes depending on when it occurs.
The highest growth option was not necessarily
the strongest strategy
The international plan could produce the largest long term revenue. It also required the greatest organisational commitment before the assumptions were proven.
The acquisitions accelerated scale. They also increased leverage, integration risk and management dependency.
The UK route produced less headline growth but materially improved cash generation, customer economics and execution confidence.
The question was no longer: which option grows revenue faster?
Which sequence of decisions produces the strongest enterprise while preserving the ability to take the next decision well?
Then the investor makes the problem harder
Now assume an investor is prepared to fund both acquisitions immediately.
The financing is available. The valuation is acceptable. Management could accelerate the path towards £1.8 billion. Some directors will quite reasonably ask why the company should wait.
This is where the decision stops being a simple comparison of growth cases.
Taking the capital changes other things. The company's ownership may change.
Governance may change. The acceptable time horizon may change. Leverage capacity for a later transaction may change.
Management could gain a sophisticated investor and lose part of the freedom to change the strategy eighteen months later.
Again, none of that means the capital should be rejected. It means speed has a price which does not appear entirely in the financial model.
The fastest route to the target may also be the route that leaves the company least able to change its mind.
There is no neat ending
The phased strategy could be wrong.
The Gulf market might move much faster than expected. The larger acquisition could be bought by a competitor while management waits. Domestic customer demand could weaken. The investor might withdraw.
A board cannot architect away uncertainty. Nor should an adviser pretend otherwise.
What management can do is become clearer about the uncertainty it is choosing.
It can know why one risk is being accepted and another deferred. It can distinguish assumptions which need monitoring from commitments that become difficult to reverse. And it can decide in advance what evidence would cause the organisation to accelerate, slow down or change direction.
That is a much more useful strategic position than treating one forecast as though it were the future.
08 / WHAT E. CARTIER & CO ACTUALLY BUILDS
The work should leave management with a decision system, not
another strategy presentation.
A Direction & Growth mandate is not intended to end with a presentation which receives enthusiastic approval and gradually disappears from executive attention.
The outputs depend on the decision, but the work commonly leaves behind the following institutional assets.
Defines the business management is actually attempting to build, including changes in revenue quality, capabilities, economics, dependencies, customer mix and strategic position.
Enterprise Direction Architecture
Separates the real sources of future value and shows what each demands from the organisation in capital, management capacity, capability and time.
Growth Source Map
Strategic Portfolio
Tests material growth opportunities against economics, strategic position, dependency, management load, repeatability and optionality.
Growth Quality Assessment
Makes capital, leadership, technology, regulatory, operational and organisational constraints visible before they become execution failures.
Strategic Constraint Map
Creates criteria leadership can continue using when evaluating acquisitions, market entries, major customers, partnerships and new propositions.
Market & Opportunity Decision Standards
Establishes the order in which material decisions should occur and the conditions management expects to see before the next becomes sensible.
Strategic Sequence
Gives leadership a senior view of the small number of assumptions, constraints, interventions and decisions capable of materially changing the direction of the enterprise.
Executive Direction View
The purpose is not to create another strategy presentation. It is to create a basis on which management can continue making better decisions when new opportunities inevitably appear.
09 / WHERE THE ADVISORY AREA MATTERS MOST
Direction & Growth becomes most useful when the old strategy has stopped answering the new questions.
The need often appears before anything is obviously broken.
The organisation has outgrown the assumptions behind its previous strategy.
Growth has become fragmented across too many initiatives.
Management is considering a significant international market entry.
Acquisition is becoming an important route to scale or capability.
The business model itself is changing.
Management must choose between growth, margin, cash and strategic investment.
A major customer or partner is creating both opportunity and dependency.
Capital is available but the best use of it is unclear.
The company is growing quickly but becoming strategically harder to control.
Or management has reached the more fundamental question: What exactly are we trying to become now?
That is often the point where another annual planning process becomes insufficient.
10 / WHEN THE RIGHT ANSWER IS NOT TO GROW
Growth should not be protected from strategic scrutiny simply
because it is growth.
A serious advisory relationship must leave room for a conclusion that is commercially inconvenient.
A geography may be attractive but depend too heavily on one partner, require a cost base the economics do not support, or demand institutional capability the organisation does not yet possess.
Do not enter the market.
An acquisition may increase EBITDA while consuming the same management team needed to fix a more important problem in the existing business.
Do not make the acquisition.
A customer capable of doubling one division may create concentration, product influence or commercial dependency the group should not accept.
Do not accept the customer.
A requested proposition may produce substantial revenue from one account and move the company further away from the business model it has spent years trying to create.
Do not build the product.
External capital may be available at exactly the moment management is least ready to deploy it well, or on terms that narrow future strategic freedom more than the board intends.
Do not take the capital.
The analysis can point the other way. Management may have been too cautious. A market may deserve far more capital, or acquisition may be the only credible way to obtain a capability before the strategic window closes.
Or move faster.
We do not begin with a preference for expansion or restraint. The work is there to determine which is justified.
11 / BEFORE THE NEXT STRATEGY MEETING
Questions worth answering without a presentation in the room.
If management capacity became the binding constraint tomorrow, which 30% of the growth plan would disappear first?
The answer tends to reveal which priorities are real.
Which customer could double our revenue and simultaneously weaken the company?
Where are we pursuing growth because the opportunity exists rather than because it fits the enterprise we intend to build?
Which initiative is economically attractive on its own but strategically incompatible with the rest of the portfolio?
What are we assuming will become easier simply because the company becomes larger?
Some problems scale too.
Which decision today most reduces our ability to change direction two years from now?
That cost rarely appears in the initial business case.
If we reach the revenue target, what sort of company will we actually have created?
A board should be able to answer that before it funds the journey.
CLOSING PERSPECTIVE
Growth is visible. Direction is less so.
There is something reassuring about a growth target. It is measurable. It can be put into a plan, divided by geography, translated into budgets and revisited every quarter.
Direction is harder.
It asks management to make choices before the evidence is complete. It requires somebody to say that an attractive opportunity does not belong in the company. It occasionally means choosing a route that looks less impressive in year one because it creates a better position in year four.
And sometimes it means moving much faster than the organisation originally intended because waiting has become the greater risk.
There is no single rule.
What matters is that the growth plan and the enterprise being created are examined together.
Because revenue does not arrive alone.
It brings customers, obligations, people, capital requirements, dependencies, operating complexity and expectations. The company has to live with all of them.
That is why the real test of a growth strategy is not simply whether the organisation reaches the number.
It is whether, having reached it, management still likes the business it has built.
Before the next stage of growth is funded, establish
what kind of enterprise it will create.
E. Cartier & Co works with boards, founders and executive teams facing material decisions around growth, market
entry, acquisition, portfolio choice, capital deployment, new propositions and changes in business model.
Where should future value come from?
What should become materially different about the business?
What opportunities genuinely help create that position?
What do they demand in capital and management capacity?
Which dependencies are acceptable?
What should happen first?
What should wait?
What becomes possible, or impossible, once the organisation commits?
The conclusion may be to accelerate. It may be to concentrate investment behind fewer priorities. An acquisition may become more important. Another may cease to make sense. A full market entry may become a narrower first commitment. A prestigious opportunity may be rejected.
Or the board may deliberately accept slower near term growth because the alternative creates more revenue and a strategically weaker company.
There is no preferred answer before the work begins. That is the point.