I had a meeting last week with a new client. Founded in 1958, the company is family-owned and run by the founder’s daughter. The father is still around, but she is now the majority owner and President.
The situation? They’re treading water. Profitability over the past five years has gone from “very good” to “just okay.” Sales have dropped and they are no longer growing.
Meanwhile, anxiety is rising and family members are asking what’s going on. My client has even begun wondering if she is the right person for the job.
In circumstances like this it’s easy to panic and consider a run for the exit, or a rush to start doing things, hoping something sticks.
I assured her that the race is not over, nor is her situation unique. In fact, I see it fairly regularly, particularly in multi-generational businesses that are in the process of passing the torch from one generation to the next.
Companies need to grow and, as important, they need to stay profitable. But before you rush headlong into a new growth strategy, it’s worth taking the time to figure out why you’re growing so slowly to begin with.
Here are four common drivers behind the “growing too slowly” problem:
1. Jumping from one idea to the next too quickly.
New ideas are important. If you have lots of ideas to grow your family business, great! But sometimes, especially when you’re growing slowly (or not at all), in your zeal to grow the business you can jump from one idea to the next too quickly. As CEOs and business owners, we do this because we’re desperate to generate sales. When we don’t see results quickly enough, we’re off to the next thing in the hope that eventually we’ll hit upon something that works.
I understand you want to grow sales and profits. But remember – it takes 4-6 months for the results of the actions you take today to show up on your financial statements. If you find yourself tempted to move on to the next idea before you’ve seen results, whether it’s from your own drive to succeed or pressure from family members, ask yourself why? If you have good reason to believe in the value of your idea, stay the course, focus on execution and remain disciplined.
2. Trying to resurrect the past.
Many moons ago, I took over as President of a furniture company. There was a retro phase happening in the market and we thought that our “Tank Desk” – which had done well in the past – could once again be successful for us. You remember tank desks, right? That was the huge metal desk your elementary school teacher had. Back in the day, they were in use everywhere in schools and government offices.
Anyway, we turned up the volume in this line – training our sales people, giving away display models, spending money on advertising. We figured that since the desk sold well in the past we could catch a popularity wave and reclaim its former glory and sales success.
Results? The sales we had envisioned never materialized and we ended up taking a bath. It’s natural to look to past successes when trying to grow. And, if you’re a family business with an older generation still looking over your shoulder, there’s even more pressure to repeat the past and “do what worked before.” Unfortunately, it rarely succeeds.
In most cases, you’re better off letting the past go so you can focus on meeting the needs of today’s marketplace. (After the tank desk misstep, we moved into shelving, opening up a new, growing, very profitable business segment.)
3. Not really understanding costs.
Lots of businesses have only a general sense of their financials. Maybe the information they’re using is old. Or maybe they track their raw material costs closely but don’t allocate labor and distribution properly.
Whatever the reason, until you really, really understand which components of your service or product offerings contribute to profitability and to what degree, you have no way of knowing where to focus your energies. I regularly work with clients who have epiphanies when they finally understand the financial levers of their own businesses.
In short, you need to develop a closer relationship with the numbers and the “numbers people” in your business, whether that’s your controller, your CPA or an outside advisor. Invest in this area and get the insight you need to run your business properly and profitably.
4. Placing too much hope on service and not enough on real competitive advantages.
It’s the rare company that can make service its unique competitive advantage. For most organizations, you need more than that to stand out from your competitors. Does customer experience and service quality matter? Of course, and I’m a huge proponent of creating a great user experience for your customers. But when growth slows, quick fixes to your service will not generate the kind of sales growth you’re looking for.
Unfortunately, when faced with slow growth, companies often double down on faster delivery, longer hours, more personable support and the like. What we see is costs going up and sales going nowhere. Unless your company can state service is a unique, sustainable competitive advantage, you’re focusing in the wrong area. If you want to grow profitable sales, you need to develop and communicate a sustainable, competitive advantage.
Think about it this way: If your business ceased to exist tomorrow, what would your customers miss that couldn’t be found from your competitors? Find measurable specifics to support your answers. Put your emphasis on strengthening competitive advantages.
If your growth strategy isn’t working as well as you think it should be, stop to consider if one or more of these issues are at play in your organization.