Growth Strategies for success in 2022

CEOs of mid-market companies are poised for growth and watching for new opportunities, ready to respond to pent-up demand and potential new opportunities.

“It takes agility and good business sense to shift to new strategies. Our CEOs are enriched by the research and shared experience that they glean in our workshops and discussions” Jay Holstine said, in sharing how his Dallas-based Vistage CEO peer group helps business leaders capitalize on change, and attain new levels of productivity. 

“Whether it’s: identifying the best finance strategies, or the right markets to expand, the interplay of smart ideas is vital to finding solutions that fit each CEO’s company,” Holstine added. 

“Our CEOs depend on the shared wisdom, the shared research, practical experience, and ideas, that help identify new ways that teams and companies can work more successfully,” Holstine shared.

“In our new, altered economy, many companies are positioning themselves to grow their market share, acquire a competitor, or redesign their own offerings. With predictions of U.S. economic growth at over 6%, companies are identifying ways to ride this wave,” Holstine said. 

The consensus may be a little more risk-averse, but it’s still looking for capital and poised for growth

One of our members shared that, in this environment, he sees funding as the primary challenge in these efforts. Even prior to the pandemic, companies were careful not to take on too much debt, or dilute equity. Having drawn on lines of credit or received federal Payroll Protection Plan support, many company leaders would rather not go to their banks again. But without capital, they risk missing out on unique growth opportunities.

“Members agreed that the challenge is developing alternative ways to fund growth. While previous discussions often involved cost reduction with the aim of greater efficiency, the top priority is growth. 

The focus is in finding ways to advance efficiency in order to free up capital so that it can be directed to areas where it will create revenue, generate strategic growth options, and increase enterprise value,” Holstine added. 

Some of the key take-aways were: that although they had strong demand and adequate capital, it was human capital that they were lacking in 2021, a dilemma affecting their whole industry and exacerbated by regulation. He said his company was not going to reach its growth and financial goals without major strides in productivity and efficiency. Essentially, the budget dollars they were losing to inefficiency could have been better directed and used for growth,” Holstine relayed.

Instead of searching for efficiency by cutting costs in ways that ultimately defund growth and leave an enterprise depleted, there are better approaches toward strategic efficiency and growth at the same time. Productivity is basically outputs divided by inputs, (such as investments in technology, inventory and capital equipment.) Instead of letting the quest for productivity turn into a cost-cutting effort, it’s better to find opportunities to maximize outputs, as well as reduce inputs, and to derive more value from all the assets, not just the workforce.

Focusing on profitable customers is one way to get more value from less effort. Marginal customers tend to take a larger amount of time, energy, and assets, yet deliver less to the top line. By prioritizing the more valuable customers and linking sophisticated load-planning software with its ledger of customer commitments, companies are able to optimize their service capacity. 

Working Capital Optimization

A highlight of the workshop discussion was that the most sure and easy capital you can access is your own money that’s tied up in bills you pay too soon, your own receivables you collect too slowly, and your own unnecessary inventory: 

Most of the CEOs said they underestimate how much working capital their companies use. Improving the use of their payables, receivables and inventories can provide on average $10-$20 M in interest-free capital to use in growth efforts. 

In trading agreements, mid-market companies have more leverage with big customers than they think, especially if they’re providing critical components or raw materials.

Financial planning and analysis is often an untapped area for finding revenue. If the finance team lacks the right capabilities and tools, it can waste time simply fixing data issues and explaining variances in routine reports, instead of driving real-time analytics for more informed business decisions.

A variety of cost-management opportunities stemmed from changes caused by the pandemic. Ultimately, the reduction in travel spawned a new era of virtual meetings, new modes of communicating, sales and customer expectations, in place of significant travel budgets.  

Reconsider your actual real estate needs and act. Office vacancy rates in major cities are at an all time high. Now is the time to negotiate lower rents. The new hybrid work culture has benefits that your workforce wants to keep, and it enables companies to hire beyond their traditional geographic footprint. 

Cross-functional IT integration is one of the more important opportunities. Beyond just automating routine work, there are advantages in digital integration across functions, enabling companies to optimize operations, logistics, marketing, and other systems as a whole. Tools to do this are now so much more affordable, they are becoming detrimental not to have. For example, transportation companies are bringing together IT areas, to coordinate customer commitments, load planning, and route optimization. Optimizing the whole system generates productivity gains well beyond what can be attained by improving each element alone. 

The general thought is that if leaders can offload assets like transportation fleets, warehouses, IT servers, they can glean significant gains in productivity through digitalization’s transformation of their business models and balance sheets.

These improvements in productivity can fund growth more effectively than mere cost cutting. And they can greatly enhance enterprise value, to position the company better for funding expansion with outside capital. Demonstrating several quarters of improvement gives potential investors and buyers confidence that these efficiencies are sustainable and not short-term measures taken as a transaction-related show.

The success of these major implementations depends on leaders building buy-in across their organizations and engineering the growth. They must communicate the value of changes, and the phases and the expected outcomes. The resulting enhancements will facilitate a culture of cost management, with long-term growth and profitability.