CEO Advisor Newsletter March 2017
Growth Strategies to
Maximize Profits in 2017
Market PenetrationOne growth strategy in business is market penetration. A small or mid-size business uses a Market Penetration strategy when it decides to market existing products and services within the same market or industry. The only way to grow using existing products and markets is to increase market share. Market share is the percent of unit and dollar sales a company holds within a certain market vs. all other competitors. Gaining market share requires a strong, well-defined sales strategy, and CEO Advisor, Inc. specializes in formulating and implementing sales strategies for small and mid-size businesses.
Market ExpansionA Market Expansion growth strategy involves selling current products and services in new markets. There are several reasons why companies consider a Market Expansion strategy. First, the competition may be such that there is little room for growth within the current market. If a business does not find new markets for its products, it cannot grow or increase sales or profits - in fact, profits will decline over time. Additionally, a Market Expansion strategy is needed when a company serves small, niche markets or the growth of these markets stagnate. A small or mid-size business may also use a market expansion strategy if it finds new uses for its product and services.
Product ExpansionA business may also grow by expanding its products or services or by adding new features to increase its sales and profits. When small or mid-size companies employ a Product Expansion strategy they increase products or services, while continuing to sell within the existing market. A Product Expansion growth strategy often works well when technology is rapidly changing. A small or mid-size business may also be forced to add new products as older ones become obsolete.
DiversificationGrowth strategies in business also include Diversification, where a small or mid-size company will sell new products to new markets. This type of strategy can be very risky and companies will need to plan carefully when using a Diversification growth strategy. Market research is essential because a company will need to determine if customers in the new market will potentially want, need and purchase the new products at profitable pricing and at sustainable and forecastable volumes.
AcquisitionThe above strategies focus on organic growth, and most CEOs and business owners of small and mid-size companies focus solely on this strategy. Growth strategies in business can also include mergers and acquisitions. With Acquisitions, a company purchases another company, or purchases the assets of a company without taking on the liabilities to expand and grow. A small or mid-size business may also use this type of strategy to expand its product line, enter new markets and gain expertise and intellectual property.
An Acquisition growth strategy can be risky, but not as risky as a Diversification strategy. One reason is that the products and markets are already established with an acquisition. A company must know exactly what it wants to achieve when using an Acquisition strategy, mainly because of the time and investment required to implement it.
CEO Advisor, Inc. specializes in advising and implementing growth strategies to grow small and mid-size businesses to the next level. Call Mark Hartsell today at (949) 629-2520, text Mark at (714) 697-3370 or email MHartsell@CEOAdvisor.com to schedule a free initial consultation.
Making Your Company More Valuable and Attracive to Potential Buyers
Valuations have fully recovered and are extremely high again, and M&A activity is strong. Today, one of the limiting factors of deals getting done are over zealous CEOs and business owners that demand extremely high prices for companies that were not sellable less than a decade ago. Another limiting factor is that your business may simply be too small to attract a buyer (under $10 million in revenue) which means you need to gain help in accelerating your growth.
Whether you decide to sell your company in today's hot market, or prefer to hold and grow your business further (and risk another drop in the market), there are certain key areas that you need to focus on to build value and make your business more attractive to current and future buyers. A strategy to make your business irresistible to prospective acquirers may generate the greatest return in your life time. After all, I tell our clients on a regular basis, you never know when the perfect buyer will knock on your door.
Below are key factors that you must employ in your business to build value, make your company sellable and attractive to current and future buyers.
The growth rate of your business is critical to the value of your business and the attractiveness of an acquirer. Small to mid-size businesses that grow at 10% or 20% per year are not attractive to buyers given the many other options they have to acquire faster growing businesses. If your growth rate is slow or stagnant, there are issues that you need to address in your business if you expect to exit at some point in the future. This key factor applies to all types of businesses all the time.
Companies that are dedicating people and resources (their M&A team) to acquiring other companies tend to focus on larger companies. It takes just as much (actually more) time to acquire a small company than it does to acquire a mid-size or large company.
Acquirers are looking for revenue and profits that will move the needle of their business. They want strong management, large markets served for future growth, and revenue that is substantial and predictable. Kick into growth mode to increase sales, profits, the value of your business, and to generate your golden opportunity to sell.
If you are only as good as your last project, you are in trouble today. Acquirers see value in recurring, contracted revenue. Not just loyal customers that buy semi-regularly, but a strategy and business model with long-term, contracted customers that is forecastable and predictable. Not all customers need to be this sure bet, but you need to have a business that has staying power to attract buyers and have them pay you handsomely for the customers you have secured and for your many years of hard work.
Gross Profit and Gross Margins
Your Gross Profit Margin (GPM), or Sales less Cost of Goods Sold divided by Sales, is the number one factor that points to the profitability of providing your product or service (before overhead/expenses). Acquirers are attracted to businesses with high GPM as this will typically result in high Net Profit, Net Profit Margin and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).
Depending on your type of business (manufacturing vs. service vs. software have very different Gross Profit Margins), you need to have a GPM that is at or higher than other companies in your industry to optimize your value. If your Gross Margins are low, seek advice from a business advisor as you are leaving a lot of profits on the table, as well as, penalizing your business value substantially.
Strong management is always a key factor in running and growing a sustainable business that is attractive to buyers. Interim management (business advisors, CPAs, attorneys, etc.) work well for smaller and mid-size companies until they reach a certain size where a full permanent management team can be hired. If you are the lone senior executive in your company or your management team is lacking a full realm of expertise, you need to gain additional expertise and experience from a seasoned business advisor to help you grow and build value in your business.
CEO Advisor, Inc. has decades of experience and expertise in hands-on advising of small and mid-size businesses, including growth and strategy, building value, growth capital and buying/selling companies.
Contact Mark Hartsell, MBA, President of CEO Advisor, Inc. for a no cost initial consultation at (949) 629-2520, by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information.