Are You Growing the Right Way?
Driving Strategic Growth that Creates Higher Valuations
Am I Growing the Right Way?
This seems like a silly question, right? If I am growing, I must be doing things the right way. But the real question remains: Is there a wrong way to grow? Depending on your businesses’ stage of maturity, the answer may be “no” in the short term, but definitely “yes” in the long term. All business owners focus on the growth of their organizations under the premise that when they grow their top line, more profit is generated (usually), and more money is available to reinvest in the business and take home for yourself. This all sounds great. However, the challenge comes into play when owners grow the business without enough intentionality. Clearly there is an intention to grow, but other than funding additional investment in the business and an improved lifestyle, why are you growing? Growth for growth’s sake is not necessarily good in the long term when it is not enhancing organizational value. There is only one right way to grow, and it involves being strategic, intentional, and focused. Mastering these elements will ensure that every pursuit, investment, hire, and even daily activity is focused solely on driving long-term organizational value.
Small business owners often create top line growth by taking advantage of every opportunity that presents itself without enough thought given to profitability, building a portfolio of clients that could be attractive to an investor or buyer, or building a scalable model. Additionally, simplistic compensation plans generally place the same value on a dollar of revenue, regardless of whether it is incremental or not, whether it is highly profitable, supports the strategic growth of key products or services, or creates recurring annual revenue. Thus, the activities of the sales team tend not to be aligned with strategic growth initiatives, either.
Small business owners often create top line growth by taking advantage of every opportunity that presents itself without enough thought given to profitability, building a portfolio of clients that could be attractive to an investor or buyer, or building a scalable model.
At some point, all business owners are looking for an exit strategy. That strategy may be a successful transition to the next generation of family, an IPO, or seemingly more common, finding a buyer that appreciates the value of the organization you have built and is willing to pay top dollar for it.
In choosing the latter exit strategy, you have one opportunity to maximize the value of your liquidation event, so it is imperative that you start planning for your exit several years in advance of seeking a buyer. There are several levers that either positively, or negatively, impact your organization’s value to a potential investor or buyer. Many of these levers can be addressed with a strategic view toward your revenue generation function. This is where growing “The Right Way” comes into play, and the sooner these practices are implemented, the more impact you can have on your company’s value. Let’s look at some of those areas that can be impacted by your revenue generation function and what you can do to better position yourself for an exit years in advance of finding a strategic buyer or investor. Even if you don’t eventually execute a sale, you are building organizational value, client and employee loyalty, a scalable model and an altogether well-functioning team who will produce a higher level of profitability in an environment where everyone will share in the success and opportunities that are created.
Some of the key levers within the revenue generation function that can lead to significantly higher levels of profitability and impact organizational value include:
- Market Segmentation
- Sales Compensation
- Integration of Marketing and Sales
- Sales Leadership and Accountability Management
Market segmentation – Organizations who leave the selection of which prospective clients to target in the hands of their sales representatives never maximize revenues or achieve strategic objectives. Target and client assignment to the sales team is of significant strategic importance and needs to be done with a great deal of thought and care. Once determined by the organization, the list of targets assigned to each sales representative needs create sustainable relationships that help you secure existing revenue, but also drive net new revenue by becoming reasonable, finite, and relatively stable. I have worked with clients who have either assigned sales representatives to have massive geographic territories inclusive of all companies of all sizes in all industries, or have allowed salespeople to randomly select their target list from those companies who were unassigned to another rep in the CRM system. Neither approach will ever result in growing strategically, or optimizing the investment in your sales team.
Having very few, but very large customers can be great for growth, but it also adds a great deal of risk to your business and will typically reduce your organization’s value to a buyer. Your segmentation should certainly focus on maximizing the value of your largest clients, but also on the creation of incremental clients who fit the profile of those who create most value. In terms of addressing these desires and delivering successful market segmentation some of the most important questions include:
Have you given significant thought to the profile of an ideal client, in terms of revenue size, geographic presence, industry, or potential for profitability?
Do you know which clients or prospects have the ability to consume the broadest array of your products and services?
Was there solicited feedback within your industry or the investor community as to what they might look for in a geographic footprint, an industry focus or distribution of revenue across clients?
Have you given significant thought to the profile of an ideal client, in terms of revenue size, geographic presence, industry, potential for profitability, and ability to consume the broadest array of your products and services? Have you solicited feedback within your industry or the investor community as to what they might look for in a geographic footprint, an industry focus or distribution of revenue across clients? If not, this is a critical first step in getting strategic and intentional about revenue generation. Once this is done, you can identify the specific sales representatives or account managers who are best suited to target this list of clients and prospects to create incremental revenue, but also lasting and sustainable relationships.
Sales Compensation – Salespeople do what they are paid to do. Furthermore, as is human nature, they will do what pays them the most with the least amount of effort. If you have a compensation plan that is not aligned to your organizational goals and does not strongly encourage the sales team to find and close truly incremental business, the result will be commissions paid for stagnated revenue.
You should strongly consider implementing a plan that highly rewards incremental growth, and revenue that is, or can become, highly profitable and recurring. Those factors all impact the value that potential buyers or investors place on your business and, to the extent you align the behaviors of your sales team to the key valuation levers, you will see a significant aggregate impact over time. Furthermore, if your sales team is not creating incremental growth, you do not need a sales team.
Integration of Marketing and Sales – While this is not necessarily an issue that is typically explored by potential investors, your organization’s focus on this topic, if done correctly, is something that can bring much greater efficiency in your investments, higher returns, growth and more net new clients. These are all areas that certainly matter to investors. Many small businesses use primarily gut feelings to determine what trade shows they attend, sponsorships in which to invest, direct mail or social media campaigns they launch, or even what non-profits they support.
Sometimes small business owners mistakenly believe that broadening the reach of the brand will magically lead to more business. However, the brand does not pay the bills, revenue does. Going back to the topic of intentionality, every investment that is made in marketing or brand building needs to be made with the understanding of how a return is generated and how success is measured. Most often, these investments need to be treated as a continuum and not the one-off investment disconnected from sales, as they are often viewed. Participation in an event or trade show, for example, should be considered at a strategic level.
How does this investment help us build our brand, develop relationships and produce revenue with those clients who we most highly covet?
What should the partnership look like with sales to ensure that there is pre-event activity that drives interest and meetings that could lead to revenue?
How are you articulating your value proposition at the event in a way that is consistent and differentiating?
What is the sales and marketing follow-up plan to ensure leads are turned into opportunities that eventually lead to revenue?
If there are not good answers to these questions, you are likely making a bad investment.
Sales Leadership and Accountability Management – This is an area of your business that will be evaluated by potential investors. While the talent of individual staff members can be somewhat subjective and difficult to quantify, the quality and experience of people on your management team and the turn-over and contribution of those on your sales team will likely be of great interest. This brings us to four key questions:
1. Have you established organizational KPI’s which are reported on consistently and publicly within your organization?
The KPI’s should mirror your corporate strategy, which should be consistently reinforced with your compensation structure.
2. Are you effectively managing performance through effective one-on-one discussions about results, pipeline and activity that drives revenue, and are you effectively coaching up, or coaching out those who are underperforming?
Not doing so is demotivating to the higher performers and keeps you from making investments that could drive the business forward. If you are spending money for non-performance based on lack of capacity or desire of the salesperson, Stop!
3. Are you doing what you need to do to retain your top performers who create consistently high levels of incremental revenue and continuity in your key client relationships?
Losing a key performer can create risk in your relationships and create openings for competition in your key accounts, as well as cause you to lose revenue. Keep these resources engaged and motivated!
4. Are you maintaining a solid pipeline of high-quality talent that will allow you to either fill openings quickly that have resulted from attrition, or add to your staff in a way that drives additional growth with the lowest amount of management and ramp-up time?
If you are not maintaining a solid network of talent that could serve as high performing back-fills in the event of a departure, you could lose six months, or more, of revenue generation and relationship continuity with the loss of a key salesperson.
In virtually every organization, the sales team has the awesome responsibility for the viability of the entire company. Ensuring you have experienced, proven leadership of that function, even if outsourced with a less than full time executive because the cost burden can become prohibitive for top talent, will more than pay for itself.
Over time, operational discipline and excellence in the sales and marketing functions can make an enormous difference in a company’s value. The sooner that an intentional growth strategy is implemented, the better the chance of maximizing a buyer’s willingness to pay top dollar for the company you worked so hard to build.
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This article was authored by Greg Stanley, founder and owner of Accelerant Consultants, a consulting firm dedicated to helping small and mid-sized businesses maximize growth and valuation through effective execution within their sales and marketing functions. Greg has spent a career of over 25 years helping large and small companies build sales and marketing teams from the ground up and managing existing teams in a way that leads to intentional growth, maximized profitability and enhanced valuation. To learn more about how Accelerant Consultants helps clients build and execute growth strategies that significantly increase organizational value, or to have a discussion on how to address your organization’s specific challenges, visit www.accelerantconsultants.com