How will you chart your path for growth to grow shareholder value? There’s not a magic answer, or everyone would be doing it. I recently presented a webinar with the National Association of Wholesaler-Distributors (NAW), sponsored by Epicor.
In it, I discussed the six keys to shareholder growth in today’s environment:
- Recognize that revenue growth is no longer the key driver for growth in shareholder value. Rather, the drivers are building competitive barriers to protect enterprise value, organic growth that is faster than the industry, a high EBITDA margin, and the ability to acquire and integrate acquisitions.
- Consider that your best growth strategy play may be to invest and become a platform company. A platform company typically grows at two to three times industry growth. Investing to become a platform company may have a better ROI than even doubling revenue. Platform companies grow intentionally, have scalable infrastructure, are a critical link in their supply chain, have attractive customers and partner with leading suppliers.
- Invest in projects that create competitive advantage on either the price or cost side. In other words, invest in initiatives that create profit in cost advantages (operating scale, better processes, productivity) or price advantages (scale with suppliers, mass customization). For example, strategic pricing or a good CRM system – which require you to do new things, and not just the same things better.
- Invest in ways to increase the customer’s switching costs: It’s about them, not you. Make it harder for them to walk away. Consider special inventory, special terms, consignment, VMI, custom order configurations, selling data on product usage, special pre- or post-sales support, lifecycle management, and more.
- Redesign your sales function to bring in specialized roles and reorient around the way that customers want to buy. And move from a self-directed sales force to a management-directed one. Reduce the number of transactional activities your highly paid sales reps do, and move those to inside sales or customer service. Add market specialists and telesales.
- Invest in marketing to create customer-specific value propositions for a management-directed sales force to execute. Segment customers based on potential to grow, cost to grow and switching costs. Design incentives, develop customer solutions, reassign customers and realign with suppliers to better meet what your customers truly need. Use real data. This will take time to reap a high ROI; decide if you are playing the game to win, or just not to lose?