by Real Business - Thursday, 30th August 2007

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When I bought my first turntable at the age of 14, I had no idea that one day I would be the biggest retailer of hi-fi equipment in Britain and that my shops would be declared the busiest in the world by The Guinness Book of Records (highest sales per sq. ft) for six years running.

Like many entrepreneurs I was a poor performer at school - though one of the few who wasn't actually expelled. I was provided with a good upbringing by my parents but blessed with certainly no more than the average number of brain cells and I'm definitely not a workaholic. Precisely because of this, I think it is important to give encouragement and support to people who may be lack confidence and aren't academically brilliant, but still have the skills to provide a profitable service, to create jobs which we badly need and to generate taxes to support the society in which we live.

While a great deal of business success does come down to the drive, skill and luck of the individual, there is much more that organisations can do. But to do it they'll need to turn some business assumptions on their head.

Most businesses make the mistake of measuring their performance in terms of figures when they ought to be measuring it in terms of people. The primary measure of success should be customer satisfaction, not profits. Profits are simply an indicator that you are getting customer service right.

Customers are not the only people on whom a business depends. What about all the other people you deal with, from suppliers to bank managers? It is amazing how many managers treat them as a nuisance, to be either fobbed off or grovelled to - when seeing them as people, with their own legitimate requirements, can make a big difference to the success of the business.

But the most important and most neglected people in any business are the employees. And the most important - and most neglected - of these are the ones who deal with the customer. The key to success is how you treat people, so that they are motivated, productive and, in turn, treat your customers well.

Putting people first means thinking about long-term development rather than short-term gain. It means investing resources in people rather than buildings. It means attention to detail, continuous improvement and organic growth.

Lots of businesses start up, do well and then don't really know how to carry on. They don't know when the time is right to grow or how fast they should expand.

One of the tests should be the financial controls. If you are producing reliable figures every month, that proves you have the self-discipline to go further. And this extends to all the information you need (and only what you need). The moment figures do not come in on time, alarm bells should start ringing.

Second, you must have your staff and managers in place. A company that is growing slowly and steadily should always have good people coming up through the ranks. To fit the right people into the right jobs, you have to be able to try them out, which means you must be quick to promote, but also quick to demote. We are always ready to allow people to have a go at a job, but if they can't handle it they go straight back to their old job with no fuss.

In a relatively small company like ours, it can be difficult to find new challenges for people who deserve promotion. At Richer Sounds we have found a way of keeping up the momentum of promoting from within by developing dual roles. Many of our people, from senior managers to sales assistants, have a "second job" within the organisation. As well as adding variety to their job and stretching their abilities, it ensures that the company makes the most of their experience and skills.

Incidentally, it is vital for your business that you train a successor. A lot of employers are reluctant to do that, especially if they don't own their company. They think they're going to put themselves out of a job. But apart from making the business more saleable, they have a responsibility to ensure that the company does not fall apart if they step under a bus one day.

The third test is that you should be building on strong foundations. Never try to expand out of trouble. I've often heard companies say: "If only we had another 15 stores, to support head office, we would be OK." That is nonsense. If you are having difficulties, the answer is to prune, not expand.

Entrepreneurs will want to try out new things and I've tried (and often failed) as many new ventures as anyone, but my advice would be: never risk more than you can afford. I've seen too many businesses risk everything on new technology or a new brand, only for it to fail and bring them down.

Growth should be slow and controlled, especially financially controlled. It is like tending a bonsai tree: growing a really strong, solid object very slowly. What goes up slowly comes down slowly, so your business is far less likely to come crashing down. The quicker you grow, the more detail gets forgotten.

Our pattern of growth has been in steps. We have added new stores and then had a period of consolidation, making sure they were all running well before we entered the next phase of expansion. This has many advantages. If you are continually expanding, it is very difficult to measure the increase in costs and overheads. During the consolidation period, you can gain a true view of your position and bring your costs under control.And growth is not everything. Richer Sounds has been through two recessions and come out stronger each time. With low rents and rates, we can control our costs much better than firms with high fixed costs. We found that in recession, customers were willing to search us out to pay less. We became more aggressive about getting deals, which suited customers who were more value- conscious. Overall, people might be spending ten per cent less, but what matters to us is that the proportion they spend on hi-fi is spent with us and not our competitors.

We do not claim to have all the answers. We've made mistakes and we still make them, but we try to learn from these mistakes, refine our approach and improve all the time. The zest for continuous improvement is essential to any type of organisation. Improvement through learning is a cornerstone of civilisation, and we should apply that to our businesses as well as ourselves.

There is never a perfect way - there is only the best way until you find a better way.

Contacts
Julian Richer is the founder of Richer Sounds. This article is adapted from The Richer Way by Julian Richer, EMAP Business Communications, 3rd edn 1998. Copies of this book are available by calling 0171-378 9730.

This article was published in Managing a Growing Business, published by Caspian Publishing, in association with the CBI and Telia UK. Price £15. For details, contact Cassandra Donovan on 0171-828 0706 or at subscribe@realbusiness.co.uk

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