Creating a Lean Scale Up Budget


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The Budget is truly the Fuel for Growth

When you view most budgets they are almost always cost-related with little identification for resources that clearly set aside for growth. How do companies stop being innovative? Why do companies stop growing? Many simply stop planning and budgeting for it. The budget is truly the fuel for growth and innovation.



It affects your balance sheet, your profit and loss statement and


If you are not a financial type person – I encourage you to seek not only professional advice but to become a numbers person. CEO, Founders or anyone in charge of growth needs to understand the numbers. If you presently are not part of the leadership team, and want to be at that table, learn your numbers. Feel comfortable with talking the language of business, money.

Having a strong foundation is the key to growth. Many companies move prematurely to a growth strategy. They look at growth at the savior to their financial woes. They will disguise cash-flow problems by growth. This, often time, is hidden by increased inventories that are rapidly obsoleting as you grow. The day of recognition will come when growth stops or slows down. If you have closed down a division or a company, you understand how much your inventory is worth. My rule thumb has always been; if there is dust on it, don’t count it.

Starbucks plans their growth in a unique way. When they open stores, they expect to take 25% of their business away from the adjacent store. This way they create cash flow and that famous line of people waiting to get a Starbucks. They were not developing new customers. They take existing customers and influence others with them. Think about Apple, did they take a certain portion of iPod users away with the iPhone, the same attributes were repeated with the iPad. All products contained an overlap of features and benefits making it a smooth transition between products for Apple, the customer and developer.

This type of growth can be viewed as a progression between the iPod and the development of an eco-system to support it. The next improvement was the iPhone followed by the less than spectacular iTouch, followed by the iPad. All of them were not exactly out-of-the box thinking. Rather, a continuous improvement effort (PDCA) that improved the entire Apple eco-system. They developed the products/services from the core. Apple, Starbucks and many other franchises are developed that way. It is one of the most inexpensive ways to fund growth.

Companies with good ROIC (Return on Investment Capital) typically develop products with high ROIC. It is imperative that you are making money with what you have before moving forward. We are always looking for the silver bullet in the next product, next market, but there is a high cost associated with taking market share away – others are firmly entrenched. How many times do you look at your existing product and think that another market can use it. It makes sense for them. What we forget is that the market is already being served by someone else and more than likely as you move away from your core your product or market, it is not as disruptive as you may think.

The Lean StartupTM movement is being touted as something that is needed in existing business. It will enable a mature business to innovate better? Many companies are using practices such as Design for Six Sigma, Lean Product Development, Lean 3P, Design Thinking, Service Design and other design practices. Many of these practices have evolved because of existing cultures and structures. My cautionary note is not to quench the enthusiasm of entering new markets but to advise that you must step back and realize the time, money and skill needed to enter these markets.

Creating a Lean Budget for Growth:

SDCA Budget: When we look at a budget it is much easier to create one from a standardized business model. A repeatable one that, pun intended, we can take to the bank. Having this well-defined allows for us to provide the fuel for future growth. It allows us to understand how growth will be funded. Without a standard, you cannot improve. (Something that we have heard before – Taiichi Ohno) For example if we consider that we will have 60% of our resources (time, skill, money) devoted to standard work that creates a foundation for 60% of our budget.

PDCA Budget: Develop a budget for growth based on a philosophy of continuous improvement. This may be taking existing products into new markets or new products into existing markets. Remember, that you must allocate a higher cost to entering these markets or to the development of new products. It is something that can be easily done with an Excel spreadsheet. This not a complicated process since you should be only adjusting a portion (either product or market) of the standard budget.

EDCA Budget: The next step is to develop a budget for a new product and new market, a more difficult task. However, if you have practiced developing one as described in the preceding budget, you are halfway there. Discuss and make your best estimates. A word of advice that I learned years ago from Warren Avis, he said something to the effect that create the best and most accurate business plan that you can and decide how much money you will need, then double it. In my experience, he has proven to be correct.

At this point, you have a SDCA, PDCA, EDCA budget. The percentages of each portion will be different for every company but add them together and evaluate if you can prosper or survive with this scenario. Play with the numbers increasing different efforts and see what happens. What happens if you devote too much time growth? How much growth will you have if your core business slows down? What happens if an improvement effort flops? This is not a one-time event, constantly update the sheet and review at least monthly with your leadership team to include your finance people. Hold people accountable, including yourself, to the budgetary process. I encourage you to use the all the financial instruments that are available to you.

Innovation Management about the CFO is a recent blog post that asked these 3 questions:

  1. How does the organization decide to take an idea to concept (how do we decide to invest) ?
  2. What makes for a compelling narrative around a concept? (Financial Model – Expectations of validity)
  3. How does the budgeting process work for new ideas and ventures?

Another resource, if you are or thinking that you want to become a public company, I recommend the book, Value: The Four Cornerstones of Corporate Finance

  1. The Core of Value: a business’s value is driven by its growth and return on capital, and resulting cash flows
  2. The Conservation of Value: value is created when companies generate higher cash flows, not by simply rearranging investors’ claims on cash flows
  3. The Expectations Treadmill: movements in company share prices reflect changes in the stock market’s expectations, not just underlying performance
  4. The Best Owner: the value of a business is not an absolute but, rather, depends on who is managing it and the strategy pursued

This week, April 22nd thru the 26th, we will concentrate on how to grow, or scale-up your small business. I will be scaling-up the entire week culminating in a webinar, The Lean Scale Up, which is followed by a period of Q & A on the afternoon of April 26th. Only registered participants will be invited to webinar and Q & A.

Republished with author's permission from original post.

Joseph Dager
Business901 is a firm specializing in bringing the continuous improvement process to the sales and marketing arena. He has authored the books the Lean Marketing House, Marketing with A3 and Marketing with PDCA. The Business901 Blog and Podcast includes many leading edge thinkers and has been featured numerous times for its contributions to the Bloomberg's Business Week Exchange.


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