Bruce E. Jacobs10.12.10
It’s Time to Start Thinking About Growth Again
Regardless of whether your business remains affected by the economic downturn, executives have to begin to refocus on growth at some point. An enterprise that doesn’t grow and doesn’t put growth plans in place, either is going out of business or is a prime candidate for being acquired.
It is difficult for managers to start thinking about growth when revenues have not returned to normal and employees have not been called back to work. Going forward, however, “normal” may never be what has been experienced in the past, and it’s time to adapt and start planning how the business is going to grow.
An enterprise can stimulate growth in two manners:
• Internal organic growth
• Growth by acquisition
Internal organic growth is achieved through the development of new markets, development and introduction of new products and services, penetration into new market segments, and expansion of the customer base in new sales regions and industries. Growth by acquisition is achieved either by acquiring companies or acquiring product lines and service offerings that expand the customer base and add revenue with additional sales volume, customers, market share and new market channels.
Regardless of the method used to drive growth, it’s never a bad time to think about growth, especially when the management processes already are in place as part of your corporate culture to plan, implement and assess activities designed to achieve expansion goals.
Internal Organic Growth
Internal growth is the hardest growth to achieve if the enterprise doesn’t have the management processes embedded to drive organic growth. Internal growth requires the management resources to focus on market and customer needs, development of new products and services to meet those needs, determination of new markets and market channels where existing and new products may create an opportunity.
This type of growth requires commitment, longer lead times, vision, creativity and intellectual energy, and has risk associated with it. It requires resources and business processes in place to provide a continual stream of internal growth opportunities that generate new revenue over and above the revenue being generated by the existing product line and service offerings, customer base and markets. Raising product prices should not be a consideration in the growth strategy. However, reducing prices may be a tactic to drive growth, stir the market and bring attention to your products and service offerings.
It can be difficult to begin the growth process and thinking about growth when there are so many unknowns about the economy. One thing is certain: Customers want lower prices and like getting a deal. So, is there an opportunity here to drive growth by serving a customer base that wouldn’t necessarily be your current customer base? Various enterprises have changed the playing field of competition by adding a new market segment of customers they wouldn’t ordinarily serve by modifying an existing product or service line and offering it to a new customer base at a lower price but with the high level of quality and brand recognition. It happens regularly in the consumer products industry.
Products that normally sell through specialty distributors or dealers now also are being sold also to the consumer by crossing into the consumer market channel. The products become available through the big-box, no-frills retail stores and warehouse clubs. Several products you may recognize include John Deere walk-behind lawn mowers and LX yard tractors that now are available at Home Depot and Lowe’s. Mongoose bicycles—originally sold through bicycle dealers and shops—are being sold through Walmart. The professional-grade tool products that once only were available at contractor supply dealers all have crossed the channel and are available at the big-box hardware retailers. Mercury outboard engines can be purchased from the large outdoor retailers, Bass Pro Shops as well as their existing market channel of boat dealers. In many instances, the products have been redesigned and priced to meet the new market’s customer requirements and price points.
I’m not suggesting the medical devise and equipment industry reduce its product prices and sell through the big-box retailers or even the mammoth nationwide drug distributors. John Deere developed a retail riding mower with a different price point; Mercury outboard engines did not. I’m suggesting the investigation of new market and customer segments that could provide large growth opportunities and a new customer base with minor modifications to the products or service lines to meet the price points the new markets require. An enterprise is limited only by the paradigms it lives with.
Every product or service line offering has a finite life cycle, and sooner or later the life cycle will need to be revitalized or allowed to retire from the product portfolio. The replenishment effort to generate new products and achieve growth from new products, markets and customers requires the management processes to be in place to develop new offerings. Only a few years ago, Procter & Gamble decided to add service lines of businesses to their product portfolio and capitalize on the strength of their brand recognition by establishing Tide dry cleaning and Mr. Clean car wash franchises.
Understanding the Sources of Growth
Developing a sound understanding of the source of growth the enterprise has achieved can be accomplished by assessing the contribution in sales revenue each new product and service line has added annually, as a percentage of the enterprise’s total sales revenue. In addition, the same sales revenue contribution can be performed for all remaining products and services. The assessment identifies the growth new products and services have contributed to the sales revenue base and the total sales revenue mature products are contributing.
The same individual assessment should be done by customer, customer segment and market channel to understand the contribution in sales revenue each contributes. Determining how and where to grow becomes much more strategic when businesses consider the facts and data about the products, services, customers and markets that have contributed to growth. It also affords the opportunity to recognize the performance of the products and service offerings holistically for the company and to assess where products and services can be expanded or need to be replaced or retired. Too many companies wait longer than they should to retire, revitalize or develop substitute products and services which end up consuming valuable resources that should be better used for products and services that have the potential to provide real growth.
As a part of the management process, the performance requirements new products and services should contribute to the total revenue base should be established. The same performance requirements should be established by customer, customer segment, market channel and region. The performance measurement is the percent of total annual revenue or percent of revenue for a period that has been contributed. Understanding the performance and contribution of a company’s product portfolio and customer base is essential for developing growth strategies and plans as well as being able to respond quickly to changes in the market.
Defining the growth requirements for a company is important to improving and achieving growth. It doesn’t have to be exponential or aggressive, but it should be realistic and achievable with some stretch requirements. Demonstrated consistency in growth is more advantageous and indicates a consistent effort is in place to achieve growth. Growth should not be by default.
With organic growth embedded in the management processes and contributing to the revenue base of the company, an opportunity to capitalize on growth from acquisition richly compliments the results achieved through organic growth, but the company is not dependent on growth by acquisition for its future.
Bruce E. Jacobs is a consulting partner with BrokenGate Consulting and works with client executives to improve operating performance, design and implement improved business processes, value chain and supply chain performance improvement, performance measurements and optimize technology applications to enable improvements. He can be reached at (314) 704-0693 and at www.brokengateconsulting.com.
Regardless of whether your business remains affected by the economic downturn, executives have to begin to refocus on growth at some point. An enterprise that doesn’t grow and doesn’t put growth plans in place, either is going out of business or is a prime candidate for being acquired.
It is difficult for managers to start thinking about growth when revenues have not returned to normal and employees have not been called back to work. Going forward, however, “normal” may never be what has been experienced in the past, and it’s time to adapt and start planning how the business is going to grow.
An enterprise can stimulate growth in two manners:
• Internal organic growth
• Growth by acquisition
Internal organic growth is achieved through the development of new markets, development and introduction of new products and services, penetration into new market segments, and expansion of the customer base in new sales regions and industries. Growth by acquisition is achieved either by acquiring companies or acquiring product lines and service offerings that expand the customer base and add revenue with additional sales volume, customers, market share and new market channels.
Regardless of the method used to drive growth, it’s never a bad time to think about growth, especially when the management processes already are in place as part of your corporate culture to plan, implement and assess activities designed to achieve expansion goals.
Internal Organic Growth
Internal growth is the hardest growth to achieve if the enterprise doesn’t have the management processes embedded to drive organic growth. Internal growth requires the management resources to focus on market and customer needs, development of new products and services to meet those needs, determination of new markets and market channels where existing and new products may create an opportunity.
This type of growth requires commitment, longer lead times, vision, creativity and intellectual energy, and has risk associated with it. It requires resources and business processes in place to provide a continual stream of internal growth opportunities that generate new revenue over and above the revenue being generated by the existing product line and service offerings, customer base and markets. Raising product prices should not be a consideration in the growth strategy. However, reducing prices may be a tactic to drive growth, stir the market and bring attention to your products and service offerings.
It can be difficult to begin the growth process and thinking about growth when there are so many unknowns about the economy. One thing is certain: Customers want lower prices and like getting a deal. So, is there an opportunity here to drive growth by serving a customer base that wouldn’t necessarily be your current customer base? Various enterprises have changed the playing field of competition by adding a new market segment of customers they wouldn’t ordinarily serve by modifying an existing product or service line and offering it to a new customer base at a lower price but with the high level of quality and brand recognition. It happens regularly in the consumer products industry.
Products that normally sell through specialty distributors or dealers now also are being sold also to the consumer by crossing into the consumer market channel. The products become available through the big-box, no-frills retail stores and warehouse clubs. Several products you may recognize include John Deere walk-behind lawn mowers and LX yard tractors that now are available at Home Depot and Lowe’s. Mongoose bicycles—originally sold through bicycle dealers and shops—are being sold through Walmart. The professional-grade tool products that once only were available at contractor supply dealers all have crossed the channel and are available at the big-box hardware retailers. Mercury outboard engines can be purchased from the large outdoor retailers, Bass Pro Shops as well as their existing market channel of boat dealers. In many instances, the products have been redesigned and priced to meet the new market’s customer requirements and price points.
I’m not suggesting the medical devise and equipment industry reduce its product prices and sell through the big-box retailers or even the mammoth nationwide drug distributors. John Deere developed a retail riding mower with a different price point; Mercury outboard engines did not. I’m suggesting the investigation of new market and customer segments that could provide large growth opportunities and a new customer base with minor modifications to the products or service lines to meet the price points the new markets require. An enterprise is limited only by the paradigms it lives with.
Every product or service line offering has a finite life cycle, and sooner or later the life cycle will need to be revitalized or allowed to retire from the product portfolio. The replenishment effort to generate new products and achieve growth from new products, markets and customers requires the management processes to be in place to develop new offerings. Only a few years ago, Procter & Gamble decided to add service lines of businesses to their product portfolio and capitalize on the strength of their brand recognition by establishing Tide dry cleaning and Mr. Clean car wash franchises.
Understanding the Sources of Growth
Developing a sound understanding of the source of growth the enterprise has achieved can be accomplished by assessing the contribution in sales revenue each new product and service line has added annually, as a percentage of the enterprise’s total sales revenue. In addition, the same sales revenue contribution can be performed for all remaining products and services. The assessment identifies the growth new products and services have contributed to the sales revenue base and the total sales revenue mature products are contributing.
The same individual assessment should be done by customer, customer segment and market channel to understand the contribution in sales revenue each contributes. Determining how and where to grow becomes much more strategic when businesses consider the facts and data about the products, services, customers and markets that have contributed to growth. It also affords the opportunity to recognize the performance of the products and service offerings holistically for the company and to assess where products and services can be expanded or need to be replaced or retired. Too many companies wait longer than they should to retire, revitalize or develop substitute products and services which end up consuming valuable resources that should be better used for products and services that have the potential to provide real growth.
As a part of the management process, the performance requirements new products and services should contribute to the total revenue base should be established. The same performance requirements should be established by customer, customer segment, market channel and region. The performance measurement is the percent of total annual revenue or percent of revenue for a period that has been contributed. Understanding the performance and contribution of a company’s product portfolio and customer base is essential for developing growth strategies and plans as well as being able to respond quickly to changes in the market.
Defining the growth requirements for a company is important to improving and achieving growth. It doesn’t have to be exponential or aggressive, but it should be realistic and achievable with some stretch requirements. Demonstrated consistency in growth is more advantageous and indicates a consistent effort is in place to achieve growth. Growth should not be by default.
With organic growth embedded in the management processes and contributing to the revenue base of the company, an opportunity to capitalize on growth from acquisition richly compliments the results achieved through organic growth, but the company is not dependent on growth by acquisition for its future.
Bruce E. Jacobs is a consulting partner with BrokenGate Consulting and works with client executives to improve operating performance, design and implement improved business processes, value chain and supply chain performance improvement, performance measurements and optimize technology applications to enable improvements. He can be reached at (314) 704-0693 and at www.brokengateconsulting.com.