Could you double, triple or quadruple your company’s revenues over the next five years? A study published by The National Commission on Entrepreneurship (NCOE) found that less than 5% of all companies generate annual growth of greater than 15% per year over a five-year period. The study also states “flying in the face of conventional wisdom . . . high-growth companies are not only found in high-technology sectors . . . fast growing, entrepreneurial companies are widely distributed across all industries.” This means that all industries including non-technology segments like retail, business services and manufacturing provide high growth opportunities but few companies actually generate substantial revenue growth. A key reason is that very few companies develop growth plans that effectively tap their real growth potential.
The typical planning mindset- The most common business planning approach for companies (particularly those in non-growth industries) is to develop a growth strategy under the following guiding questions: (1) “How much capital do we have?” (2) “What needs to be done?” and (3) “How do we allocate that capital across the different opportunities?” From the outset, this approach limits the company’s growth strategies to only those initiatives suited for the company’s current capital structure. That limitation can be significant especially for small and middle market private companies that have limited access to additional capital.
High growth planning- To plan like a high growth company, ask your management team, “What would we do if we had all the money necessary to grow our business to its full potential?” From this exercise management should uncover a whole list of new and exciting growth initiatives. New strategies not previously identified may include: (1) horizontal or vertical company acquisitions, (2) new product/service launches, and/or (3) broader, (possibly exclusive) supplier or customer relationships. During this part of the planning process any initiative that increases top-line revenues and profitability are fair game.
The typical planning mindset- The most common business planning approach for companies (particularly those in non-growth industries) is to develop a growth strategy under the following guiding questions: (1) “How much capital do we have?” (2) “What needs to be done?” and (3) “How do we allocate that capital across the different opportunities?” From the outset, this approach limits the company’s growth strategies to only those initiatives suited for the company’s current capital structure. That limitation can be significant especially for small and middle market private companies that have limited access to additional capital.
High growth planning- To plan like a high growth company, ask your management team, “What would we do if we had all the money necessary to grow our business to its full potential?” From this exercise management should uncover a whole list of new and exciting growth initiatives. New strategies not previously identified may include: (1) horizontal or vertical company acquisitions, (2) new product/service launches, and/or (3) broader, (possibly exclusive) supplier or customer relationships. During this part of the planning process any initiative that increases top-line revenues and profitability are fair game.
Prioritizing strategies- Once the brainstorming is complete and some very exciting, plausible growth opportunities have been identified, management should develop more detailed growth scenarios that quantify the anticipated revenue potential and resources required to launch these initiatives. In choosing its strategies management should also identify the long-term strategic advantage of each initiative. Ideally management should develop strategies that help to further differentiate the company’s product or service as well as improve the company’s defensible market position against competitors.
Planning reduces company risk- After identifying different scenarios management should then develop financial projections to determine if any additional financing is required to implement the growth plan. Many companies mistakenly believe it is less risky to use internal resources to implement their strategies. However, if the growth plan goes off track once launched, management could put the entire company at risk and find it very difficult to seek additional financing at favorable terms. By doing thorough up-front planning and seeking outside financing prior to launching the growth plan, management can effectively reduce the company’s overall business risk while also pursuing specific growth initiatives.
Outside financing- As stated at the outset, high growth companies exist in all businesses, not just select high growth industries. Recent financing transactions show that institutional investors and investment banks also support growth in diverse industries. Thus, despite the doldrums for traditional venture capitalists, the current capital markets for established businesses in even basic industries like business services and manufacturing are significantly more robust. Further, to provide attractive financing alternatives to these companies, professional investment firms are increasing their use of customized financing products like subordinated debt and mezzanine financing. These financial products provide greater liquidity than bank debt and are also far less dilutive to a company’s current ownership than traditional venture capital.
Putting it all together- If you and your management team have high growth ambitions, make sure you utilize a planning methodology that matches your growth aspirations. Companies that consider all strategic alternatives, refine their strategies with good prudent planning, and work diligently to realize their well-thought out plan will consistently build substantial value for all their stakeholders over the long-term.
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