Managing Business Growth: Slow and steady is the race

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Officials at the Minority Business Development Agency hope the agency’s new focus on companies earning $1 million or more annually will spur smaller minority business enterprises to manage growth strategically to achieve economies of scale. Joshua Gubitz, the MBDA’s new business development specialist, spells out strategies for what he calls “organic growth,” whereby a company grows between 5 percent and 15 percent a year. “Organic growth is where most growth happens and it’s how most big companies get to be big companies. Slow and steady is the race. That’s not as sexy as [growth by] merger and acquisition or strategic alliances,” he told business owners attending New York’s annual Minority Enterprise Development (MED) Week conference in August.

Companies grow organically either by growing revenue or by growing profits, Gubitz says. Growing revenue is an external, sales-focused process, while growing profits is internal and more operations-focused, he says.

Growing revenue

Revenue growth means increased sales and market share. “It’s push versus pull. ‘Pull’ works better because it accommodates the market, not pushes itself on the market. The customers drive the show,” Gubitz says. “Understanding what the customers want is the basis of ‘pull.’’’ A winning strategy for growing revenue is built on the following basics, he says:

•Good market research, including trends, regulations and the competition. “Walk around the stores. Talk to people. Get sociology students to design a questionnaire,” Gubitz advises.
•Knowing where the opportunities for growth are. Read newspapers, magazines, etc.
•Good customer data. Know where your customers are, who they are, how they buy, what they need and the best way to deliver it to them.
•Good competitor data. What is the nature of your competitors? Is it, say, Wal-Mart or mom-and-pop?
•Matching the business mission to market demand. “Don’t be a blue widget maker in a pink widget world,” Gubitz warns.
•Communicating your vision internally and externally—to your workers and your customers.

Action steps for revenue growth could include:
•Selling more products to your existing customers.
•Selling to new customers.
•Getting new distribution channels.
•Moving into new geographic areas.
•Developing new customer segments.
•Developing new products.
•Starting a related business.
•Expanding along the supply chain. For example, if you manufacture beverages, buy the bottler and the distributor.

Growing profits
Profits grow when internal operations are streamlined and variable costs are lowered. Important internal drivers for growing profits, Gubitz says, are:
•Management. Do your company’s managers manage well?
•Sales team. Does your sales team sell enough?
•Marketing team. Does the marketing staff appeal to your target market and customers? Do they send the right message?
•Operations. Are you lean? Is the quality of your product up to par?
•Supply chain. Do you get good prices and good service from your suppliers?
•Distribution arrangements. Do you have good deals with the right people to get your product out?
•Corporate culture. Are your employees loyal? Would you want to work for your company?

By answering these questions honestly, a company can implement practical measures to eliminate internal weaknesses.

Pitfalls

Gubitz advises against operating in the belief that ‘if you build, it they will come,’ because customers won’t come if they don’t want what you build. Poor cash flow management, he notes, is the single biggest killer of young businesses. And growing too fast is dangerous. “Venture capital firms normally won’t invest in you unless they feel you can grow 25 to 30 percent a year. That does not make sense for most companies,” he advises.