04 Mar The 3 Keys To Profitable Growth – The Outcome
The 3 Keys to Profitable Growth – The Outcome
So back to last week’s blog – yours truly is on the hook for roughly triple my net worth as a participant (twice-removed) in a management buyout – having outbid the modern day iterations of Gordon Gekko to make the deal. Financial (not to mention personal) Armageddon is feeling like a real possibility here.
A management meeting was convened in company headquarters to help us all understand just exactly how this was all supposed to work out. Trust me, our CEO had the full attention of everyone gathered in the room. He handled it masterfully.
Basically, he told us that day to let the finance people do what the finance people do. They’re good at it – don’t worry about it. But we (the operators, relationship managers and marketers) would need to do our part in a very specific and disciplined way. The deal would work – and work very well – if we focused on three things – the three keys to profitable growth he called them:
First, retain your existing clients. We would increase our internal rates of retention in every line of business with an absolute goal of 100% client retention. In a business highly dependent on cash flow and a high return on net assets – particularly one where new clients required high start-up costs and slowly maturing margins – stabilizing the current book of business would be critical.
Second, sell more to the clients we already have – in other words – grow organically. Often there were opportunities to increase retail sales levels and/or expand or enhance the range of services under management. All of this would be accomplished maintaining our traditional close attention to controlling operating costs – but we wouldn’t suddenly be trying to save our way to prosperity. Organic top line growth with each client would be the second critical priority.
Third, sell new business. I would guess that 90% of the people entering the room that day would have thought that this would be our most important task – and, to be honest, I was one of them. It was drilled into us on that day that, only when the first two priorities were well in hand would we look at acquiring new clients, and that when we did, we would do so in a disciplined manner — and only on our terms. No longer were we looking to impress the analysts with flashy top-line growth in the short-term – we were doing what would be required to service our debt, generate quality earnings we could sustain, reinvest in our businesses and expand our leadership position.
All planning, budgeting, compensation and communications were adjusted to conform to this new reality and the laser-like focus on this new order of priority. The culture of the company changed that year too – clients became partners and were viewed as assets with which we were entrusted. Colleagues became teammates. Managers became coaches. Everybody became family. It lasted for a good long while – longer than I would have imagined.
Importantly, it all worked and we were a better company for it. In no small part, we succeeded because our strategy was based on good sound fundamentals. So, while a management buyout would definitely not be the prescription for every company – the focus on these three keys to profitable growth – in their expressed order of priority – is simple and sound.
At Tenacity, we’re focused on helping our clients with #’s 1 & 2. We don’t do #3 – there are lots of firms out there that do though. We just think it’s too easy to overemphasize (and over invest in) new sales and underemphasize the extraordinary power of high retention rates. So do our clients.
Besides, haven’t you found that priority #3 tends to take care of itself when you get the first two right?
Steve & John