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GROWTH

Written by: Andy Marken

Article Overview: ...HOW BIG IS BIG? HOW MUCH IS ENOUGH?

GROWTH

Growth--too much, too fast, too soon--can be a direct cause
of failure.

The problem is, no one wants to stand still. It's not "The
American Way". Each of us starts a company with one objective:
to grow...to gain greater stature and increase profits.

And why not? We're constantly bombarded with "bigger is
better".

Look at the business pages of your newspaper. You never
see an item on a company that's growing slowly or maintaining
status quo. But financial editors aren't to blame for covering
the growth of companies, growth of stocks, growth of industries.
People want to be associated with the winners. And when they
invest, they want their companies to grow in sales, profits and
market value.

As a result, the desire to grow becomes almost compulsive.
And it's true that most of the time, when a business stops
growing, it begins to wither and die.

Unfortunately for many management groups, growth for the
sake of growth has become the all-consuming objective. Nearly
every other consideration takes a back seat to this golden grail.

Don't get me wrong. Growth is necessary. And growth isn't
necessarily bad. But it takes a lot of planning and preparation.

Your Objective...ROI

Growth and size may contribute to an organization's
temporary wellbeing, but offer no assurance of long-term health.

Each of us knows of organizations that rang up tremendous
sales for a given period. Unfortunately, they also lost money on
every sale. Don't let anyone kid you, you can't make it up in
volume. Profit shouldn't be measured in revenue generated but
rather in terms of return on the investor's investment.

When that investor is you, the concept of ROI takes on an
even greater meaning.

Take Victor for example. Rather than take its money and
run for the short-term growth earlier this year, Victor elected
to invest heavily in marketing and sales. It's true, profits

didn't increase as they could have compared to the previous year.
But Victor is now in a position to be even more aggressive and
more positive in the years ahead.

Achieving Growth

There are numerous methods for achieving growth--but none
are a sure thing.

For example, there is the development of a totally new and
different product for which there is a real but as yet unrealized
demand. Unfortunately, most of the people who developed these
breakthroughs in the past never made "the big bucks". That went
to the second or third outfits to enter the marketplace, or to
the people who picked up the idea after the breakthrough didn't
quite make it.

More than 14 years ago, I attempted to help promote an
individual's concept. We couldn't bring the financing together,
couldn't find dealers for the concept, couldn't find people who
would buy it in the volume necessary to ensure long-range growth
and profits.

The concept? An intelligent typewriter. It incorporated
something new called a microprocessor. The user could "program"
and then print out letter perfect letters and copy. And the user
could change copy at will with the keyboard.

The timing just wasn't right. It was an idea ahead of its
time.

The next way to "assure" growth is to improve products,
concepts or systems to make them competitively superior.

Competitive superiority gives you the edge that is so
necessary in today's fast-moving industry.

A third method for achieving growth can be readily seen in
the computer industry today. It often accompanies and enhances
the other two methods, That is, the development and execution of
strong, sometimes brilliant marketing strategies and programs.
Granted, no one in this industry has a corner on the marketing
brains, but as a group, they are increasingly becoming attuned to
the fact that marketing-- not technology--is selling hardware,
software and related products to business people and consumers.

Apple and IBM never claimed to have developed the leading
edge microcomputers. They did, however, humanize their systems.
They developed distribution and package systems that were
"palatable" to the buying public(s).


It doesn't really take a lot of excess grey matter to
develop a system; but it does take a strong, committed, creative
and dedicated marketing plan to make it sell--and sell big.

But none of these methods will assure growth in and of
itself...not to the degree we want and need.

As a result, another dimension is added. Product lines are
expanded. There's diversification into new areas.

The adding and mixing of these ingredients helps ensure
growth and profits. It can also create tremendous marketing
problems.

It's the old good news/bad news routine because with
increased size there often develops a point of diminishing
return. At some point you'll need to add overhead in store
footage, inventory, assembly/development people, support
personnel, marketing and sales staff and activities.

There's a point of delicate balance between present size
and objective and the financial commitment needed to achieve that
size/growth. It is an investment phase that every president,
every board of directors, every shareholder has to understand and
support.


Optimal Use of Company Funds
No management can guarantee the profits will be
commensurate with the money needed to move into new product or
new market areas. Nor can they say how long that return on
investment will continue. But management should continually
monitor its product lines, product mixes, customer mixes and
other factors to make certain that new products and new ventures
are providing the right return.

For example, if you are a vertical market integrator, what
was your net increase in profits from the systems developed for
new market areas? If you're a dealer, what was the increase in
profits from new lines you added compared to existing lines? How
much of the firm's money was used in the development, production
and marketing of new products? What rate of return did the new
products produce on this investment?

If you're the sole owner of your firm, you may think that
all of this extra "work" isn't really necessary. But you should
want this kind of data for your own guidance.

Vertical, Horizontal Development

Growth comes basically in two forms -- horizontal and
vertical.

Loosely defined, vertical growth is that which comes from
established sales, while horizontal growth comes from new
products, new market areas, new directions.

The only problems that can develop with vertical growth
come from underforecasting sales -- which means shortages or
delays in systems equipment and parts.

Generally, however, vertical growth is profitable since it
adds profit with a minimum of capital outlay, and minor increases
in manufacturing, warehousing or marketing overhead. Most of the
growth goes to the bottom line.

Horizontal growth, which comes from products or markets
that are only slightly different, can also yield excellent growth
and profits.


However, whenever management moves into totally new and
potentially fertile areas, it creates a totally new ball game.
Major capital expenditures may be required along with changes in
the organization. All of these overhead and operating expenses
affect your bottom line.

But this doesn't mean you shouldn't add products or market
areas. It merely means that the additions will not automatically
be as profitable as the existing products or markets. New
products or markets also create their own new sets of problems
that must be addressed.

New products and new markets are absolutely necessary if a
dealer, distributor, integrator and manufacturer is to grow. As
products become old, they must be replaced. They lose their
superior edge. They lack competitive position.


If Growth is Natural, Plan It
As we can see, growth is not only necessary for mere
survival, it is an integral part of an organization...any
organization.


This growth can be achieved by introducing new products or
by moving into new market areas. Choosing the best alternative
is one of your jobs as the boss. Only you can determine the
probability of success, market size and market need. Then you
have to turn around and determine if the products or markets met
your expectations and objectives.

Management has to constantly keep in mind that their
business is like a bucket they fill with cups of water. Every
component or ingredient they add puts another cup of water in the
bucket. When the bucket reaches its capacity, water will spill
out--a dilution of efforts in other areas, resulting in profit
losses--or another bucket has to be added in the form of a new or
additional production, support and marketing team.

There's no easy answer regarding what to do when the first
bucket becomes full. And there's no easy answer on how growth
can be achieved or which avenue is best. The only way it can be
done is by studying and analyzing your problems (opportunities)
and developing the best "insurance" alternative. Then pursue
that alternative long enough to accurately test and measure it.


There is a level where big enough will be enough for you,
your people, your financial institutions. You should be prepared
to recognize it.

Markets Meet Your Expectations and Objectives.

Management has to constantly keep in mind that their
business is like a bucket they fill with cups of water. Every
component or ingredient they add puts another cup of water in the
bucket. When the bucket reaches its capacity, water will spill
out--a dilution of efforts in other areas resulting in profit
losses--or another bucket has to be added in the form of a new or
additional production, support and marketing team.

There's no easy answer regarding what to do when the first
bucket becomes full. And there's no easy answer on how growth
can be achieved or which avenue is best. The only way it can be
done is by studying and analyzing your problems (opportunities)
and developing the best "insurance" alternative. Then pursue
that alternative long enough to accurately test and measure it.

There is a level where big enough will be enough for you,
your people, your financial institutions. You should be prepared
to recognize it.

Related Articles
  5.2 Growth, productivity and diversification: Economic Report on Africa 2007
  2.0 Recent Economic Performance in Africa and Prospects for 2007: Economic Report on Africa 2007
  That Zero Gravity Instinct
  2.1 Growth performance I: Economic Report on Africa 2007
  Building From Your Core

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