Strategies for Incremental and Aggressive Growth
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If your business stagnates, it will not be around for very long. One of your top priorities should be constantly searching for ways to grow. You need to grow your business profitably and intelligently to improve your own lifestyle and earning power, strengthen your brand, and develop the critical mass that will help your business survive the tough times and thrive in the better times. Effective growth can also position the company for a successful exit strategy, which every owner should have.
There are two stages of growth for most companies. The first is incremental steps. This stage involves taking baby steps with relatively low risk and mostly using existing resources—financial, people, and facilities. The second stage of growth involves taking bigger steps with much greater risk, requiring significant new resources.
Low Risk, Steady Incremental Growth
Every business, even the smallest ones, can grow their revenues and bottom line by looking to pick off the low-hanging fruit first when growing your business. Restaurants can add menu items. Dry cleaners can stay open longer. Commerce Bank (now TD Bank) changed the banking industry by going to a retailing model. Daycare centers can expand the age range of kids they serve. Catering halls can host a broader range of special events.
Be constantly looking for prudent, closely aligned ways to grow. Look to pick off the low hanging fruit first when growing your business. Look for “easy” ways to boost results by using available people and financial resources. View your business as a target with your current model at the center. Grow by expanding out circle by circle, digesting improvements as they evolve.
Think of Martha Stewart’s business empire. She strategically added dove-tailing services and products to serve her target audience—TV programming, a magazine, specialty publications, a robust website, a product line for Target, and more. She grew by using the same talented team of creative people and funding growth from her own profitable revenue streams until she took the company public. By expanding slowly over many years, she never lost control of her company’s equity and managed to generally escape critical financial problems.
When I bought a manufacturing company with a narrow equipment product line, I grew the business by adding slowly to the product line, raising prices (too many business owners price based on expenses, and fail to be as aggressive about pricing as they should be), and adding new complementary services, such as providing lab services to potential clients, organizing for-profit conferences, and publishing our own post card packs that carried paid advertising from complementary companies.
Pursuing More Aggressive Growth
Taking on bigger strategic growth plans, such as buying another company, selling into international markets, developing and protecting new technologies, and opening new locations, will almost always require significant funding and new staff. Plenty of new companies are launched with aggressive growth plans that require substantial funding and teams of talented people. In too many cases, they fail because the basic business model is seriously flawed or is based on technologies that will become quickly obsolete, and has little or no shot of ever being successful.
When planning aggressive growth, first look for strategic alliances that can leverage your own efforts. Be creative. Partner with leading universities to help develop new technologies. Pay your patent attorney with a slice of the future revenues from your new creations.
One example of leveraging alliances is the developer of a new wooden baseball bat who licenses his patented technology to a major sporting goods manufacturer with ready-made distribution channels. He can expand globally by finding similar sports equipment suppliers elsewhere including a UK-based cricket bat manufacturer. This is a tough job market.
Talented people have great difficulty finding good opportunities. Don’t mortgage your home to bring them aboard. Recruit them with low (or no) base salaries, and a piece of the new revenue streams they help create. Certainly don’t give or promise them equity. Let’s say an Internet marketing company just brought in a new, highly talented web developer to rev up the site. His compensation could be 5 percent of the incremental revenues (not profits) that the site generates. Attracting talented people with revenue sharing arrangements is a good litmus test to see if they really believe in your venture. You need entrepreneurial people helping you grow your business. Most businesses are hurting these days.
Be creative in putting together win-win alliances. The world is changing too quickly to build large, full-time staffs of people. Keep a lean group of top performers, and leverage their talents by going virtual whenever you can. As your business evolves, your talent needs will change. Stay flexible.
One responsibility of all business owners is to spend sufficient time networking (10 hours/week is a reasonable expectation), and building new, and growing existing, relationships. You can’t manage in a cocoon. The people in your network are the ones who will help you spot the major opportunities for growth, such as companies for sale, new facilities, new talented people searching for better opportunities, and ways into new global markets.
Finance early stages of growth with profits. Improved terms with both your suppliers (lengthen the pay cycle) and customers (get bigger deposits) can free up cash for growth. Maybe your bank will expand your credit line or finance your receivables. What’s the harm in asking? The point is to use other people’s money as long as possible.
Typically, I suggest delaying selling equity as long as you can. When you must give up equity, find ways to sell it that leave you still in control of the company. From the investor’s viewpoint, I think owning a minority piece of a privately held company can be one of the worst illiquid investments that can be made and usually leads to serious conflicts with the business owner. When you bring in new equity partners you have to be thinking of an exit strategy for them— and for you—at the same time.
Be creative with your funding solutions. Two owners of a new source of blue marble in Brazil, sold exclusive geographical marketing rights to five leading marble distributors in different parts of the world instead of selling equity or taking on huge debt to finance their exploration and processing operations. Mickey Mantle got into the NY restaurant business by putting together a group to license his name for the venture. He had low risk.
When pursuing growth, business owners should avoid:
- Personally guaranteeing any new debt. Keep your personal and business finances separate. Too many business owners (particularly ones in trouble) entangle the two.
- Prematurely selling or trading equity for services. I recently looked at a company in which the original entrepreneur, who was still the project driver, had been diluted down to 12 percent ownership by selling off or bartering away chunks of equity over 5 years.
- Hiring expensive new talent until you are really in a strong financial position. You would be better off stretching the existing team a bit further and raising their compensation if growth is successful. Or, bringing in a couple of interns to help, either for college credit, or modest pay. Some young people are really top notch and have great internet skills. Your company has to be involved with social networking if it is to grow significantly. Smart young people are looking for ways to get their foot in the door. Give them an opportunity with you.
- Having multiple locations until you have the organization in place to support a geographically dispersed structure. In a multi-facility business, it is really tough to keep the “us vs. them” mentality out of the company. Strange as it may sound, I don’t even like businesses located on multiple floors in the same building. It’s a constant challenge to have good communications, and keep everyone feeling involved.
One Last Thought
Managing a small to mid-sized company is generally a very lonesome lifestyle. Every successful business person I have ever met had some smart people around to share thinking. When you do decide to shift into a growth mode, give some thought to putting together a strategic advisory board with which you can brainstorm.
Their compensation can be as low as a good steak dinner and a bottle of wine quarterly. Don’t go it alone!