How to strategically plan and execute a growth strategy
By Jerry Weidmann
Successful, profitable growth at a rate greater than the economy grows requires strategic planning. Strategic planning is a critical component of running a successful business. It is one of our core tenets at Wisconsin Lift Truck and it is one of the pillars that MHEDA is built on.
Our management team recently updated our 2020 strategic plan. A cornerstone of our strategic plan is growth. It is our view, that increasing our operations by 50% by the end of the decade will position us for continued long term success.
In developing our strategic plan for revenue growth we identified three components; inflation, organic growth and new business development.
• Inflation. Our economic assessment is that the underlying inflation rate over the coming five years will be in the 3% per anum range. Increased equipment, parts and labor costs will drive revenue growth consistent with this underlying rate of inflation.
• Real GDP Growth. We believe that economic demand will increase the production of goods and services in real terms by approximately 3% per annum over the period. Assuming we manage our business effectively, our business will grow with the economy and this will deliver increased revenues consistent with GDP growth.
• New Business Development. In order to attain 10% compounded growth in the coming five years, we are looking to increase our business in three ways
1. Market share growth. We examined our market penetration with our product lines and have identified areas we can increase our market share.
2. Product line growth. A number of our suppliers are expanding their product lines or have made changes to their product line wherein we expect to increase our sales well above the underlying growth rate of the economy. We also have identified new product lines that will complement our existing product lines and enhance our offerings to our customers.
3. Acquisitions. We recognize that to sustain a high rate of growth over an extended period of time it is more effective to acquire established businesses that have parts, service and rental revenue streams to support the equipment sales to their customer base. Our goal is to acquire businesses that are in alignment with our business, are in our target market areas and have a consistent customer base and philosophy of operations.
As a distributor, we have a number of suppliers that are critical to our success. It is very important to us that our growth strategies align with our suppliers. We share our strategies with our suppliers and seek to understand their plans for growth as well. We seek strategic alignment between our growth strategies and our strategic partners.
As part of our planning process we evaluate our facilities, equipment, and manpower to attain the growth plan. Our human resources department develops staffing strategies. Our operations group assesses the infrastructure requirements. And our finance department assesses the financial requirements and works with our banking partners to assure us of adequate financial capacity to execute the plan.
The final step of our strategic plan for growth is a “stress test”. The purpose of the stress test is to verify that the company has sufficient capital and operating resources to continue operations throughout the planning period and that the company has the ability, even with aggressive growth, to weather a significant economic downturn. One mistake that many companies make is that they grow too big, too fast, and falter or fail in the event of a downturn. When considering adding a product line or expanding your company, it’s important to perform a stress test to determine if you have the wherewithal to weather a potential downturn with the additional inventory or overhead associated with the expansion. An expansion strategy needs to be monitored because it typically takes six months to determine if you’re getting traction in a market and two to three years to know if you’ve been a success or not. I once had an investment manager tell me that 50-percent of her investments work and 50-percent don’t. The way she made money was by identifying the losers quickly cutting her losses while sticking with the winners. It’s not that you won’t make mistakes; it’s how quickly you can identify and rectify a mistake that matters.
My recommendation to distributors seeking growth as a strategy is to follow a six step process;
1. Identify. Identify the sources of growth that are in alignment with your mission statement.
2. Select. Evaluate each area of opportunity to identify the opportunities offering the most efficient sources of profitability and select the best sources of growth.
3. Plan. Develop an implementation plan that identifies the resources; capital, labor and financial to support an implementation plan.
4. Share. Share your plan with your bankers, your suppliers, and your staff. Make sure you have support for your plan where required.
5. Test. Prepare a pro forma view of your operations with the implementation of the selected opportunities to validate the company’s ability to optimize the opportunities without undue financial stress.
6. Implement. Once the plan is validated, the resources determined and the timetable is established, implement the plan.
It is important to establish criteria for the opportunities you will consider. Three important criteria we use to assess opportunities are:
• Geography. In our view, any product line expansion in our current footprint will increase the utilization of our assets and provide a greater profit contribution than a geographically distinct opportunity. An opportunity in a territory contiguous to our current market footprint can leverage our resource base and be effective for expansion. So when we review new product lines or acquisitions we will not consider them unless they are in our current market area or contiguous to it.
• Customer market segment. We are a distributor that serves the industrial market segment. Our resources in sales, service, parts and rental are focused on this market segment. We will not consider product lines or acquisitions outside of this market segment.
• Strategic alignment of acquisitions. We evaluate acquisitions based on their alignment with our customer market segment, method of conducting business, customer base and culture. In evaluating acquisitions, we will reject acquisitions that do not align with our core business.
Growth as a strategy. Successful growth must be in strategic alignment with your company, its staff, its suppliers, and its resources. As in all things, excellent planning will yield excellent results.
Benjamin Franklin said, “Without continual growth and progress, such words as improvement, achievement, and success have no meaning.”