Is Your Revenue Habit Hurting the Value of Your Company?
Several years ago, a company in the business services segment hired me because their revenue had stalled. It was a company that prided itself on its ability to market and sell. It was considered an industry leader in its space, yet its revenue was stuck in a range. The customers they had were very happy. The company had natural turnover in clientele, losing some companies that were sold or closed or had leadership turnover, and then they would add some to replace the ones they’d lost. They had been offered a very healthy price to sell, but the owner wasn’t ready and wanted to build a more valuable business.
After reviewing their client portfolio with them, we recognized a few things. First, that they had few (relative to the number of overall number of clients) customer companies that had 300 or more employees, and those few were a lot more profitable and required much less relative labor for the revenue generated. Twenty percent of their client base consisted of micro companies. Not only did they lose money on those companies, but it also required 40% of my client’s resources to service them. From a value standpoint, when the potential buyer had looked at my client they were not interested in retaining those smaller companies, for obvious reasons.
I tell you this story because, prior to this discovery, the organization was focused on getting revenue, and most of its sales activity was directed at the wrong market segments. My client was designed and built to serve larger entities whose needs were very different from smaller firms. They had a unique value proposition to offer those larger customers. Their sales force and marketing team had not isolated this proposition. With this new knowledge my client boldly divested his company of all the smaller clients and refocused his operation on the larger segments. In the four years since making that move, the company has accomplished what they had not in the prior 26. It is on track to double its size in five years, with the double the number of customers greater than 100 and 300 employees. Their customer concentration on the larger clients has led to a leap in their profitability as well as a dramatic increase in their valuation.
Below are some signs that you may be chasing revenue and not building a valuable business:
- You cannot stay firm on pricing and charge more than your competition.
- Profit margins are not holding steady with volume increase, and your profit is below the top 10% of your industry.
- Your marketing and sales force cannot clearly focus on a specific buyer in a narrow set of segments because you are afraid to lose out on opportunities.
- “No” is not often heard in the sales department.
- Your overall growth rate is moving with the market, and possibly your company is losing market share.
- You are not increasing market share in each target segment. In other words, you’re not reaching your ideal clients.
- None of your products/services are taking off, but you just keep adding new ones.
- You fail to maximize the potential of a product or service because you are distracted into chasing shiny new objects.
- You have a few customers that make up most your revenue. Any one customer that makes up more than 10% of your revenue and or profit is extremely dangerous.
There are 15 common issues in the areas of people, strategy, and execution that drain energy, direction and profitability from every business. Chasing revenue is just one of those common issues! In my recently published book: Your Business is a Leaky Bucket, you will find a practical guide on how to effectively push change and ignite growth in your leadership team in order to achieve your organization’s full potential. Call Howard Shore for a FREE consultation at (877) 692-6211 to see how an executive business coach can help you run a more effective business or become a more effective leader.