Skip to content

Grow Fast or Die Slow – Why do some companies grow and some don’t?

by on February 4, 2015

Revenue growth isn’t a strategy, it’s a result.

So why do some companies grow and some don’t?

Big Dog

Does following best practices in strategy, marketing, operations, and organization generally make it possible for companies to increase their revenues consistently—or does that kind of growth usually require something more?

Execution and fundamentals are certainly vital, but growth requires more than best practice.

Companies that don’t increase the top line eventually hit a Growth Wall and often become targets for acquisition, selling for less than the industry average multiple. Even the largest companies may therefore find themselves grappling with fundamental grow-or-go decisions.

Top-line growth is vital for survival. A company whose revenue has increased more slowly than its peers is five times more likely to succumb in the next down cycle, usually through acquisition, than a company that is growing faster than the industry average.

Strategic Vision

Although good execution is essential it is usually not the key differentiator between companies that are growing quickly and those that are growing slowly. CEOs need to complement the traditional focus on execution with more attention to where a company is—and should be—competing.

Seeking growth is rarely about changing industries—a risky proposition at best for most companies. It is more about focusing time and resources on faster-growing segments where companies have the capabilities, assets, and market insights needed for profitable growth.

Each industry has markets and each market has sub-markets.  Insights into subindustries, segments, categories, and micromarkets are the building blocks for growth opportunities.  This granular approach to growth is critical to making the right decisions about where to compete.

These decisions may be a matter of corporate life and death.

Key Questions to Ask Yourself

Every CEO should be continually asking these five questions to evaluate when and how to maintain or accelerate their growth trajectory:

  1. How much growth do we need, and how quickly do we need it?
  2. How much growth is left in our core markets?
  3. How secure are we in our core markets?
  4. What opportunities do we have to expand our current businesses and to generate more cash to invest in growth?
  5. What new opportunities do we see that might present us with a great next act, and when do we move?

The answers to these questions and the resulting decisions can determine how the company is valued in a funding event or an acquisition.

Valuation Premium

A company can demand a valuation premium for many reasons. However, these reasons usually fall into the following five categories:

  1. Barriers to Entry: The company has specific barriers to entry that make it increasingly difficult for additional competitors to enter the market;
  2. High Margins: The company has consistently delivered higher margins than its competitors, and has earned higher returns on investment;
  3. Intellectual Property: The company has a specific proprietary technology that is difficult to replicate and/or is patented giving it a major competitive advantage;
  4. Good Fit: The company is a particularly good fit with the buyer, either because its services open up new market opportunities, or because the management team perfectly fits the buyer’s growth plans; and
  5. Market Expansion: The company has access to customers that the buyer does not, and there is an opportunity to leverage off this customer list to cross sell the services or goods that the buyer sells.

Understanding competitive advantages or “moats” therefore becomes incredibly important to value investors.

p.s.

If you’re wondering how you build a company that you can sell for a premium in a few years, contact me to discuss the Valuation Amplification Process.

Learn What a VC is Looking For

Need Help Understanding what a VC looks for when evaluating the companies they might invest in?

Download the VC Due Diligence Checklist and learn what they want from you.  https://www.therevenuegroup.net/vc-due-diligence-checklist

Upcoming Course Launch: “How to Build a Company a VC Will Want to Invest In”

We are about to launch a new online course that will help entrepreneurs learn the best methods for building a fundamentally sound company; a company that a VC would want to invest in.

Help us tailor the course by letting us know what issues or questions you have about securing VC funding.  Please take the survey here:  https://www.therevenuegroup.net/course-survey

 

Advertisements

From → M&A, Strategy, Valuation

Leave a Comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: