Slow market growth leads to a great deal of uncertainty for business leaders. One thing that is certain is the need to find growth on the earnings line of your business. In the period of 2013 – 2015 the topic was topline growth. Our economy had been sluggish for long enough that we were all eager to get back to growth and a few critical sectors began to grow at an encouraging rate SEO Benefits for Local Businesses. Pent up demand was a source of optimism. Housing, one of the larger engines for overall economic growth was coming back at growth rates of 15-20%. Automotive had been recovering as well and companies started doubling-down on growth in their top line after several years of stagnation. Enjoying the rising tide is a good start, but growth only when the economy gives it to you isn’t a recipe for long-term success. You are a genius on the rise and most blame external forces on the decline. Being well positioned for the economic lifts and lulls is critical, but outperforming the market is where your company stands out.
Growth in a flat market? Yes. In fact, there are opportunities that exist in that environment that make it very achievable. The sheer fact that competitors may limit their investments can actually open up opportunities, but you have to be in a different mindset than those competitors. One of the example companies we will discuss had experienced a revenue decline over three consecutive years reaching an overall decline of 37%. The timing was such that the economic news covered what was actually occurring, share loss in the core of the business. Using the techniques in this series of articles this business roared back to a growth oriented business with growth rates of 19% annually and EBIT growth of 5x. The success in revenue gains was so rapid, the company reached 100% market share with its number one and number three customers and 60% with its second largest from a base of 7% share with that customer. The economic growth of the category during this period… 4%. The leading competitor was later divested as a business from a very successful publicly traded company. This is what winning looks like with the right goals, processes, organizational structure, development, and… leadership.
Investors would have been satisfied with 4% growth in line with economic factors, but the best businesses take share from others. Very few are winning right now and it comes down to the investments or lack thereof that were made to prepare companies to be winning today. The seeds are planted 18-24 months earlier. If you aren’t taking share today, you probably weren’t making the right investments 1-2 years ago. While we can’t hop in a DeLorean and go back in time, we can start now for 18-24 months from now. Some leaders feel boxed in by the lack of growth. It limits the amount that can be diverted to initiate growth plans and many companies are reducing growth investments as we speak. Will they gain share in 18-24 months or will their competitors? If they all behave in the same way, the current share-stalemate will likely continue in their category. But, what if one makes a few well positioned investments? What happens when a company from the competitive set starts to take market share? Two things, first one or more of the set are then losing share. Second, they have momentum. Momentum that takes a lot of energy to catch up with by those who decide to compete for that market share. Being in a holding pattern, waiting for the next budget cycle, etc. means you are positioned to be at risk as one of the market share donors to a growth oriented competitor.
I was appointed President of a company that had declined in sales of 37% in three years. The change in strategic direction led to growth of 75% in the 3 years following. While the leadership change was a critical component it was more about making a shift in strategic direction rather than just making a change in the leader of the organization. How did a modest sized company of $180m in sales take $60m in business from the largest competitor in their industry with multi-billion dollar scale? They certainly didn’t outspend their rival. In fact, this gain was achieved without making an acquisition, without adding to facilities, and by adding only a staff of 3 incremental people. Our first revenue began just 12 months after the concept was developed and reached $60m in 3 years. To the scale leader in the industry, the $60m loss represented approximately 2% of sales. On the surface it sounds irrelevant, but what if the economy is only giving 3-4% growth and you lose 2%, well it means you underperform expectations. Think about the flipside at the $180m company that earned growth of 33%? They are truly creators of value for their investors.
Optimism for pent-up demand has started to wane in 2016. Businesses I speak with are now in a transitional state and confused in many cases. There is an evident shift toward indecisiveness and cost reduction. The obvious truth is that it should never be a choice between growth and cost. This is where “And” comes in. We have to drive high yield revenue and better business efficiency consistently. Too often we limit our businesses by believing it is one or the other. Suggesting that one or the other is more important, takes half your team off the field. If cost is emphasized, are sales leaders striving as hard as they should for new revenue? If revenue is the single thrust of the company, is operations really driving costs as low as possible? Is SG&A drifting out of control if revenues slow? Perhaps.