Winning the race for growth
Article Date: Jun 02 2006
I always remember sitting in a railway carriage on a very crowded train and next to me were two very serious-looking businessmen. One was American – obviously the boss – and they were talking about how many millions of tins of baked beans they were going to produce for next year’s budget. The US guy was pressing hard for growth of about 15 per cent, the UK guy, inflation plus five per cent.
This probably won’t surprise any keen observers of how we Brits used go about planning our annual targets. For years in the UK, most companies took inflation (price increase today!) and added a bit. But US businessmen always seemed to take a different view. They were often more bullish and eager to deploy lateral and strategic approaches: How much is the market growing? What do we want our market share to be? How do we get there? These were their questions and then they set the budget.
But that was then (20 years ago to be more precise) and today it is totally different. We have price deflation in many industries and many growth markets that are now mature.
We also have a much tougher regulatory environment today – why else is Tesco looking to expand in the US, the traditional graveyard for UK retailers?
Yet growth, and preferably profitable growth, is the one sure way of making your company more valuable, so it must be worth working for. Here are some tips:
Regularly check your price points
This can include reducing or increasing prices. Remember that product positioning vis-à-vis your competition and market perception are key ingredients. Prices, for example, can move your product into another market segment. We did this at Sage some seven years ago (with much trepidation!) in response to new competition – producing a £100 product when our previous lowest price point was £300. The new product sold incredibly well and had no effect on the more expensive product sales whatsoever. We later found out that at the £100 price point we had created a new market – people who thought that at £100 you could install and use it straight from the box (which you can!) whereas at £300 you needed help from your accountant.
Innovate with design and packaging
Retailers understand fashion but a lot of manufacturers don’t put enough time into this. Nokia made its initial breakthrough in the mobile phone market because they made their phones smaller with no cumbersome antennae and lots of different-coloured cases. The iPod is another classic example.
Work your installed base
My big bugbear as always, but getting growth from your installed base is nearly always the less risky bang for your buck. And remember that good installed base marketing needs investment in systems and people. So if you want to sell a maintenance contract for example, don’t have people queuing on the phone for hours, just to get through.
Look at your product lines
There is always a product in your portfolio that surprises you by growing more than you expect. It may be quite small and so easily missed, but really analyse your numbers. By finding out why a particular product is selling well and then putting some serious resources behind it, you can find and exploit some little gems. If you are in publishing for example, look at your internet offering and see what potential growth you have there by adapting existing hard copy product to online product. In this context the devil is often in the details. Analysing sales by customer, area, salesmen, and price point always gives you a payback in the long run.
Get into new trends
We all know how effective this can be by just taking the example of health foods in the food sector and, by contrast, the adverse effect this has had on giants like McDonalds. This may, however, be an ‘unpleasant experience’ as it often means turning business models upside down. It can also be very expensive in the short term, but true market trends are the key to your growth or decline. If you don’t get changes in genuine long-term trends right and react to them, you have real problems.
Innovate
I have talked about this before but this is not only about new product innovation but also about service innovation. Virgin is a great example here. Free limo service for upper class passengers, check-in from the car, haircut in the lounge, massage on the plane… you get the picture.
Invest
This is often the most difficult thing of all. Let’s take the example of adding new salesmen or new staff – something all of us have to consider, whatever business we are in. This is particularly difficult if we have done it before and it has not worked out. However, to get growth you must invest in people, so thoroughly analyse what you need and why and, if you went wrong before, why you did.
Timing
Another key factor. There are times when the business is just not ready, be it from a people, product or market perspective. I often get asked how you know. I guess this is the big imponderable that marks out the true entrepreneur from the rest of us.
