How much do businesses need to grow to stand still? - Business Leader News

How much do businesses need to grow to stand still?

Examining the growth mindset in today’s challenging environment

The Bank of England has warned the UK is at risk of plummeting into the longest recession since records began, as it lifted interest rates to 3%. The cost-of-living crisis, the war in Ukraine and soaring energy prices have compounded in a post-pandemic UK, and businesses must contend with the fallout.

In challenging times, survival is paramount, but is it possible to grow in the face of adversity?  Gallagher’s South West business leaders Andy Ferguson, Mark Holmes and Cheryl Phillips join forces to discuss the risk and rewards associated with growth in the current climate.

What does growth mean to you in 2022?

Mark: “As a business, we can achieve growth through retaining and winning new clients. But our costs are set to increase so much that our margins will inevitably still be squeezed. It’s the difference between growth in profit not revenue that’s important as revenue needs to grow just to stay as we are.”

Andy Ferguson, Gallagher

Andy Ferguson, Managing Director at Gallagher in Bristol

Andy: “Revenue growth can’t be considered in isolation; managing costs and increasing margins is where businesses are feeling the bite. If there is an expectation that costs will be the same as they were in 2020 and 2021, then that is difficult to achieve when pay expectations alone are so high before even considering other costs such as energy and running an office.”

Cheryl: “We understand where the squeeze is coming from – employees are genuinely concerned about the significant rise in the cost of living, and the pressures that come with that for us in retaining quality talent.”

Mark: “My question is, what growth rate do you have to achieve just to stand still? Our clients have got to make tough choices on where they channel their spend. Businesses need insurance to continue to trade. But will they buy as much protection, or will they cut back? Are we going to see more businesses exposed as a consequence?”

Cheryl: “For many businesses, the pandemic has made them so much more robust. Because they’ve been agile and they’ve responded quickly. They changed their model. Putting them in a strong position to ride the current financial uncertainty.”

What is the role of a business leader in achieving growth?

Cheryl Phillips, Gallagher

Cheryl Phillips, Managing Director at Gallagher in Exeter

Mark: “For me, the key is ensuring you’ve got the right people in place to work through these challenges. I am really proud of Gallagher’s graduate scheme and I know there are many great schemes out there. It feels like the right time for further expansion in this area as we also look to attract college and school leavers. Businesses may not always be able to afford the cost of experienced people but what they can do is get the right younger people in and train them internally.”

Cheryl: “You just touched on one part of it, which is fundamental for any businesses – succession. Having a clear vision and a one, three and five-year plan is crucial. By doing this, we show our people longevity and instil confidence. Our positioning and messaging must explain what we’re trying to do from a profitability perspective and how that actually benefits colleagues. We’re an acquiring business. So for any business considering this, future stability for people has got to be a key element.”

Andy: “Everyone is furiously competing to retain staff, and that is a challenge that isn’t going to go away. We’ve all been saying this for a long time. The challenge for many businesses is that they cannot reduce marginal growth rate. So you have to incorporate that cost into your business at the same time.”

How focused are your clients on growth?

Mark Holmes, Gallagher

Mark Holmes, Managing Director at Gallagher in Swindon and Gloucester

Mark: “Clients have been adapting. People are investing, and we have seen some sector-specific diversification post-COVID-19, with varying levels of expansion in different services.”

Cheryl: “Overall the majority of clients I’ve been involved with have got a good sense of purpose and a solid operating model.

“So then, at times like this, they’ve got the capacity to understand how they will be impacted.”

Mark: “This depends on where their revenue came from to start with. It’s quite important to see how much are they reinvesting as well. It’s only natural that business leaders will become more cautious in the current climate.

Cheryl: “There are some fabulous stories of business growth here in the South West. I think the brakes might go on because everyone is understandably worried about what’s coming down the line. Sometimes you don’t want to shout about your success, but the irony is that now is the time we should be inspiring one another by sharing these aspirational stories.”

Andy: “I’m certainly seeing clients diversifying for growth opportunities. One of my clients acquired land for development and it sat there for two years due to planning issues. He’s now changed tack and is now looking at the land as a storage opportunity. He’s put shipping containers on the land and estimates he can match his investment with one month’s income.”

Mark: “The client is clearly thinking entrepreneurially. It comes back to Cheryl’s point on knowing what you want and having a good sense of purpose, but you also have to be prepared to adapt and respond to the current climate.”

How important is confidence to business growth?

Cheryl: “It’s fundamental. Confidence is essential because, with everything that’s going on, there’s so much negativity. Taken in isolation it could make it challenging for us to maintain the positive outlook we need to have as leaders in our businesses. But what does reality feel like in your world?

“Confidence is being able to bring your direction of travel back to where you want to be. We’ve got to plan for this. We can’t be reckless, but we can keep moving forward.”

“Growth has a complex infrastructure. A business can grow in one context, be it revenue or headcount, but still be operating at a loss due to costs and margin increases. In these unprecedented times, agile businesses that can adapt and diversify quickly tend to be the first to recognise existing opportunities. 

“Organisations have already shown astounding resilience throughout the pandemic and those lessons learnt are now helping many continue to grow against all odds.”  n