5 Lessons for Growing a Business
Originally published: 05.01.12 by W. Theodore (Theo) Etzel
How to increase sales for longterm value.
Growing a business just to grow it — without knowing why you want it to grow or what the real goal is — isn’t a good reason to grow. Growth for growth’s sake is not the object. In fact, many company owners purposely limit growth for lifestyle or other reasons. It may be to spend more time away from the business, manage stress, avoid risk, limit personal capital exposure, or other reasons.
When it comes to growth, each person looks at the risk/reward ratio and the reasons for growing or not growing differently. Small, medium, or large — each stage has its challenges and rewards. In this article, I’ll talk about my experience in guiding a company’s growth from a mid-sized firm to a larger one over the last 17 years.
In 1995, when I took the reins at Conditioned Air, our company was a $2.7 million. We had 27 employees, and this had been stagnant to declining over the previous two to three years. We performed service and replacement work, and, some new custom construction; the construction department had been downsized in the ’80s due to the recession. It was my partners’ and my intention to grow the business in all aspects and build our customer base, market share, revenues and profits. My charge was to make this happen. Here are the five most important lessons I learned while doing that.
Growth needs to be intentional and communicated. You may have a goal to reach a certain size or market presence. That goal will remain a dream if the strategy and objectives to do so are not put in writing and communicated to the organization.
I determine a strategic goal (you will often have more than one) and then write down several objectives that are the specific steps needed to accomplish the goal. The goal should state your intention in a one or two sentence phrase. The goal needs to be specific, measurable, actionable, (through the objectives) realistic, and timely.
This process is not new and often referred to the S.M.A.R.T. goal-setting process. Simply stating “we want to grow our business” is not specific and not measurable. “We want to grow our revenues by 10% in the next 12 months,” is a specific goal that can then be measured and managed over the next 12 months. The objectives should then spell out the “how” to accomplish it.
Let the whole company know where you want to go and what it means for them — more opportunity, more security. This gives people a target, and, the ways to get there.
Growth is a team sport. At small organizations, leaders often have multiple roles and responsibilities. As growth occurs, the need to get the right people involved in specific areas becomes crucial. I found several situations co-existing as we began to grow:
- I couldn’t do everything on my plate.
- We had good people in the right positions.
- We had some wrong people in the company.
- We had good people in the wrong positions.
- We were missing needed skill sets for positions we needed to fill.
Oh, and we had some people who did not buy into the goal or mission I had outlined. All of this necessitated the following:
- Firing some people.
- Moving some people into new positions.
- Hiring from outside the company to fill the skill voids we had.
- Developing a more structured approach to staffing and management.
- Investing in the proper education, both technical and organizational, to grow our people.
Now, what takes a few dozen words to write took me a number of years to accomplish. This exercise should become a routine function at any successful business. Getting and keeping the right people with the right attitudes and skills, in the right positions, is an ongoing process that never ceases. I believe strongly in hiring to my weaknesses. To grow an organization, I do not believe the leader can be the single, smartest person there. If you find yourself being the S.A.K.U. (Source of All Knowledge in the Universe) then you are also the limit to the growth that can occur. It takes a team, and I consider myself the coach.
Growth can be stressful. I quickly found that at certain revenue hurdles (about every $4 million addition), the need for solid processes and procedures became more important. We were a seat-of-the-pants company when I arrived. As we grew, the chances of things falling through the cracks accelerated as did the stress level on everyone.
When we reached $4 million, I invested in the right people to help make the processes scalable and repeatable. This worked for a while, and then those processes had to be tweaked at other growth stages. Having well-defined systems and procedures increases the odds of successfully growing a business and reduces the stress on the team. In fact, today the functions that are performed to maintain and grow a large company run more smoothly than when we were small due to the attention placed on being a process-focused business. This minimizes or eliminates the “panic mode” when things get busy and provides a much better customer experience.
Growing quickly exacerbates underlying problems in the organization. My first business mentor had an expression that I still use: “Don’t try to drive in front of your headlights.” Slowing down to see the road ahead is good advice and serves me well today.
Watch the bottom line. I’ve stated that growth for growth’s sake is not a valid reason to grow. Bigger is not better if there is nothing left at the end of the day. Remember, with growth comes more exposure to risk on many fronts. Just as any investment manager would expect a greater return on greater risk, we should also be mindful of this axiom in business. It isn’t getting easier to run a business now; it’s getting harder. Growth takes capital and can easily increase overhead as revenues are pushed higher.
Managing the overhead and always keeping an eye on the profits are keys to remaining successful and relevant. Immediately after the investment and expansion of capacity, you need more sales (profitable sales) to maximize the return on your invested capital. I have found that distinguishing between “needs” and “wants” in overhead is critical. If it isn’t going to make us more efficient and save money; or, increase revenue, we aren’t inclined to add it as an expense. If you don’t firmly believe you can increase your bottom line by growing your business, then rethink growth as a goal.
Growth is not magic. In every business that I’ve been involved in and in ones that I have observed, if you treat people right, they will buy from you. I’ve also observed that the companies that get a bad reputation from poor customer (or employee) service struggle to stay in business and often fail.
We are not in the HVACR business. We are in the people business. We happen to deal with comfort issues. But our bottom line and growth is dependent upon how we treat people and that we always do the right things by, and for, them. This is no more than practicing the Golden Rule and it is not magic. It does require consistent execution each and every day.
Without this as a pillar of any company, all the marketing money spent will result only in short-term gains, and the longevity of the business will be in question. There is a big distinction between growing your business by increasing your base of customers and referrals, and increasing your business by churning customers through the system and losing them as life-long clients. The latter takes more money and effort while the former takes more discipline and principled business practices. The payoff of disciplined behavior is much greater over the life of the company than focusing on short-term gains.
Bonus Lesson: Growing smaller can be painful. If you want to grow your business bigger, there may be times when it is necessary to shrink the business, or parts of it. Market conditions, economic winds, and missteps could result in having to downsize the company. Many businesses, in all industries, found that situation recently with the economic downturn. While we worked hard to minimize the economic impact of the macro situation, we were affected nonetheless. Several divisions required that we cut back staffing and some dedicated overhead areas.
This is not a fun situation, and is very stressful. Before committing to growth, be certain you have the stomach or resolve to undo some things when the circumstances call for it. Act sooner rather than later to preserve capital and maintain the health of the organization. Livelihoods hang in the balance. It is never as easy to rid your company of overhead dollars as it is to add those dollars.
Growth is not for everybody. It should not be attempted without intention and the steps necessary to accomplish it. Communication is the key to having everyone see the bigger vision of the future. You need the right folks on the team to support the plans before you. Systems and procedures need to be developed to make your plan scalable for growth and avoid the “panic” syndrome. Investment capital and bottom line performance are important metrics to focus on in the growth cycle.
Doing the right things for your team and your clients will help to ensure the long-term viability of the organization. And, every now and then, a pause or even shrinking cycle will enter the life of the company. Be prepared to act quickly to adjust to changing circumstances.
When it comes to growing a business — and I’m purposefully repeating myself — don’t try to drive in front of your headlights. Keep a clear view of the road before you so you can enjoy the ride.
Articles by W. Theodore (Theo) Etzel
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5 Lessons for Growing a Business
W. Theo Etzel explains what he's learned growing an HVACR company from $2.7 million to $24 million in sales over 17 years.