Run it like a turnaround (before you have to), Part 2: Expansion and acquisition
Editor’s note: This is part two in a three-part series on how healthy companies can unlock hidden benefits by taking a page from the turnaround management playbook.
In our last blog, we discussed how and where you are generating your profits and how a detailed examination of this can unlock capacity and growth. In this installation, we address growth via both expansion and acquisition. This may seem a departure from the turnaround theme, but the rigor of critically evaluating opportunities is indeed applicable.
More in this series
Part 1: Generating profits
Part 3: Managing cash flow
How and where do you want to expand?
Many companies begin their expansion planning focused on what they do well, or where they have additional capacity for new products/services that they have developed. This internally focused methodology often leads to a “Ready, Fire, Aim” scenario and disappointing outcomes. A far more effective approach is to start with a verified knowledge of demand rooted in the perspective of your customers and clients.
Successful growth planning begins with listening: What are your clients’ problems and pain points? They may not tell you upfront or even have clear ideas about what they are. They may not even be totally aware of them. Invest in understanding your clients’ needs better than they do. Invest in this with both internal and external resources. Then, look inward and match customer demand against the specific product or service extensions where your company has a competitive advantage.
When expanding into new customer segments for your existing products or services, examine each opportunity and how they match your specific competitive advantages. Keep this examination simple: If your company has the production capacity, expand where there is a proven demand that fits your strengths.
Once an addressable demand is solidly identified, investigate your company’s ability to address it. Is the solution within your current skill set?
If so, it may be as simple as making minor adaptations to existing products or services or sales and marketing programs that can be easily implemented. If not, can you develop it internally with existing resources, perhaps supplemented by some key hires, technologies or other assets?
If internal development is not realistic, then one must consider an acquisition, joint venture or partnership. This process is more succinctly described as the classic “build vs buy” analysis.
Is there enough demand?
Whether expanding more deeply into current markets or new markets, whether expanding organically or via acquisition/partnership, the key determinant in assessing viability is current or potential customer demand.
Regardless of the path, simplicity is critical. It is usually most effective to focus on one or perhaps two things at a time. Trying to multitask often leads to dabbling and confusion, and when you make the decision to play, don’t play for pennies; allocate the necessary resources and play to win.
Alternatively, if you don’t have a verified market edge or lack the willingness to invest sufficiently to truly win, don’t start. Don’t dilute your human, financial or operational capital with multiple, complex and/or poorly funded initiatives.
Operating “like a turnaround” means identifying and investing in the specific things needed to succeed. This doesn’t mean under-investing; it means focusing resources on the simplest path to achieving as close to a pristine implementation as possible.
It also entails creating a realistic budget that your company can fund. Establish benchmarks to justify the ongoing investment and the discipline for monthly tactical and quarterly strategic reviews.
If the project progresses successfully, please revert to the discipline outlined in Part 1. Then keep at it or double down. If performance lags the established benchmarks, determine the specific reasons. You may have to change tactics or even recognize that the initiative should be rethought and/or perhaps curtailed.
“Ready, Fire, Aim” two ways
Do you recall the “Ready, Fire, Aim” model from Part 1?
Here’s a negative example: A specialty food manufacturer desired expansion into markets tangential to their core customer base. A thesis was developed internally as to the potential accessible market without any research or fact-driven confirmation.
Loathe to spend money on consultants or market experts and relying solely on their own perceptions, the company simply applied the same marketing and advertising approach that had worked in their core business. They then proceeded to commit significant capital and resources to a build-out, tripling their production capacity.
Fast forward 18 months, having failed to confirm and identify the accessible market, the increased production capacity remained unused, and the static marketing strategy not only failed to reach a new audience but even grew stale with their core customers.
This, in turn, resulted in a shrinking of revenues and a significant decrease in their optionality for either a desirable liquidity event or attraction of growth capital.
But “Ready, Aim, Fire” can work both ways. Here’s a positive example: A home goods manufacturer grew exponentially in one specific product category by providing a key client with extraordinary service and consistent quality.
As the client’s demands grew, the company applied financial and human capital in a well-planned strategic initiative. The result was a nine-fold increase in revenue from that account in eight years, taking total sales into nine figures.
Then, having established mutual trust, the company approached this key customer to manufacture products in a second category requiring very similar manufacturing expertise. The client accepted the proposal and participated as partners in a tightly planned product line expansion. Within three years, this category also generated mid-eight-figure revenue for the company.
Operating “like a turnaround” means taking a “Ready, Aim, Fire” approach focused on meeting a proven demand in the simplest manner. This will diminish internal friction while increasing the odds of sustainable top-line growth, stronger bottom-line results and much higher ROI. That, in turn, optimizes value, whether for a liquidity event or in seeking further growth and funding capacity.
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