I made the decision some time ago to focus my career efforts on buying a company. I want an equity stake in the company’s success, to set the tone for the culture, and to have a positive impact on team members, customers and the community.
I have considered over 30 different companies over the past 18 months. I’ve reviewed most of them from a high level and some to a much greater extent. I’ve found many business challenges among the companies but four are consistent. I should say…I consider them challenges because I have a clear focus. I will build a great culture and the company I buy will grow substantially. The challenges I see are impediments to substantial growth. While companies can exist without properly addressing these impediments, they will not grow to be great companies. Morale, profits and the ability to give back are all at stake.
Top Four Challenges/Opportunities:
1) Know Your Competitive Advantages or Develop some Quickly
Growth companies position their products and services in ways that clearly demonstrate added value well above that of their competition. When I ask “What are your competitive advantages when compared to your competition?” I typically hear answers like “our service level”, “our experience” or “our people”.
I’ve found that most owners’ perceived competitive advantages are advantages only in the mind of owners’ and not in the mind of their customers. Understanding the value of true competitive advantage, finding true competitive advantage is a necessary ingredient in the recipe for exponential growth. While these advantages must be effectively sold and marketed, without the advantages we find companies that simply roll with the tide. When market conditions are good they may grow with the market. These companies are very susceptible to market downturns, however. I’ve had the opportunity to see the differences in the results and they are stark.
Frog Street Press is a company with true competitive advantage. They market a suite of curriculum products in the pre kindergarten space. Seven years ago they were a very small company with a cult following. Leadership understood why there was such loyalty to the company and has effectively sold their competitive advantages in a very crowded market dominated by very well capitalized, established competitors. Frog Street now dominates the Texas market and is the way to doing so across the nation because they have true competitive advantage and effectively sell and market it.
Let’s contrast Frog Street with a specialty outsourced sales organization that made very good margins but that hadn’t reinvented themselves in over thirty years. Their clients were consistently picked off by competition that understood the value of developing and marketing their competitive advantage. Not only was the company not growing but revenues were shrinking. Even worse, nothing was being done to stop the bleeding and to set the company on a course to grow again. While the owners were ready to retire and to enjoy the good life the believed they had earned, their company was worth far less than they had anticipated and they couldn’t afford to sell it. Reinventing yourself when you’re ready to retire is very challenging. I wish the company the very best in their effort to do so.
Never allow your products/services to be considered commodities. I’ve declined to consider a number of companies because not only did they not have a competitive advantage but also I could not see a path to creating one. Selling based on “relationships, service and price” simply doesn’t cut it for companies that want to grow substantially. Find ways to sell value well over and above what the market perceives competitors offer.
Proudly reinforce true competitive advantages throughout the organization so that team members at every level can recite and live up to them.
2) Implement and Execute a Strategic Sales Plan
Many companies lack a sound sales strategy and even more fail to execute the strategy. Hiring, properly training, and holding salespeople accountable is a full-time job. If any one of these is managed poorly the costs and consequences to the company are tremendous. Why are sales a consistent challenge? Most companies know how to do what they do well but have no idea how to successfully and consistently sell what they do. As a result often a handful of clients make up too high a concentration of business, giving those clients too much leverage and positioning the company for disaster when significant clients leave. This also scares potential buyers and can substantially lower the company’s value.
A door manufacturer laments that his salaried sales staff makes no outgoing calls, but waits for the phone to ring. A professional services firm tried hiring salespeople but the salespeople never did what they said they would do. A medical brace manufacturer’s “sales manager” did not do either. A residential HVAC company’s president would much rather be working in a hot attic than growing the business.
Good companies that want to be great must morph into sales organizations that sell at every level. Compensation plans must encourage and reward the right activity. The right leader will implement effective hiring, training and accountability measures and will be held accountable himself/herself for results. There are coaches that can help to set the organization on the path to consistent sales success but there must be a willingness on the part of leadership to doing so. It’s a long-term commitment.
3) Implement and Execute a Marketing Plan
Marketing is a science. Knowing how to realize the best return for social media, internet, email, direct marketing and public relations can add tremendously to the success of any company. While it is challenging to maneuver through the voluminous list of outsourced providers, finding the right marketing partner is essential. Executing the agreed upon plan and following the plan is an on-going process that continually evolves.
I’ve been surprised to see the number of companies that tell me how much demand there is for their products/services but that are not effectively communicating their message to the market. Even worse, many are not attempting to effectively communicate the message. Until six years ago Frog Street Press wasn’t doing so. Many owners focus on the marketing costs and, because they haven’t experienced the satisfaction of seeing such an investment pay off, marketing is seen only as risk.
4) Hold Team Members Throughout the Organization Accountable Starting With You
I’m a big believer in hiring the right people and putting the right people in the right positions so that both they and the company are successful. A wise man once said to trust but verify. I’ve recognized a consistent lack of verification that team member roles are being performed with excellence. Accountability is an environment as opposed to an event and should permeate the organization. Leadership must set the pace and demonstrate that everyone at every level is held accountable beginning with ownership.
One company’s CFO embezzled over $2M because in part because he was not held accountable to produce monthly financial statements. Another company knew they needed to improve upon their website and marketing their business and a number of people that had been hired had said they had capabilities to help in this area. Nothing got implemented because those employees were not held accountable to make the appropriate changes.
As leaders we must clearly communicate our expectations, those expectations must be reasonable and we should gain buy in from team members to the extent possible. In order to execute we must set the example for the culture of accountability. Excellent companies develop cultures of accountability.
Do the right thing. Make a difference.