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.
GROWTH - To learn more about this author, visit Andy Marken's Website.
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