Growing Your Business in Difficult Times - Sales and Marketing

The two most effective growth strategies we are seeing at this time are increasing sales and marketing budgets and acquiring weaker competitors. Often the two go hand-in-hand since the owner of the smaller company often becomes a salesperson for the acquirer. This month I will touch on sales and marketing. Next month, acquisitions.

Increasing Sales and Marketing - getting an early jump on sales and marketing in order to gain market share is a proven way to grow your business as the economy restarts. At the bottom of a recession businesses and consumers stop buying anything except essentials. Even essentials are often cut back.

For instance an industrial equipment servicing firm we work with has seen repair orders slow down. They are finding that often the client will have two or three machines that need repairs in addition to the one they have been called to fix. As demand picks up all of these machines will have to be serviced and then eventually replaced.

Getting in front of these prospects early (but not too early) will lead to more sales and sales growth. Remember in all your sales efforts that the initial need is usually created because of pain. Without pain your biggest competitor, “doing nothing” is hard to overcome. Once there is pain you must focus on how your product or service provides the most value to overcome the pain and then contribute to the future of the organization. That is not the same as lowest price. If it was lowest price everyone would have Walmart watches on their wrists for $4.99 or less.

If you are in sales (or are an owner doing sales) and have never taken a sales course, do so quickly. There is a defined process to find pain, qualify, create value, and generate profitable sales.

One other thought. Recently I attended a seminar on fast growing consulting firms. The data all supported that narrow / deep niche players expanded quicker and had higher profits than generalists. While it is logical that being a generalist and not letting anything out of the net seems like the fastest way to grow data does not support that.

As an owner/manager the most important thing you can do in the sales arena is provide training and manage the process. Managing the process means understanding and tracking your pipeline. For instance if you sell consulting and a typical sales cycle is 3 months, what activities should be happening at 1 month and 2 months to indicate that a pipeline is being built.

How can you apply statistics to track your salespeople’s progress? Perhaps you generally have a meeting to perform a needs analysis a week after the introductory phone call. How many of those meetings occurred last week? By tracking statistics and then managing your marketing and sales staff you can manage your sales progress and know what to expect. More importantly you can reduce spending or change course if the current programs are not producing.

Increasing your sales and marketing efforts is a very important way to grow.

How To Buy A Distressed Contracting Business

Because of the current downturn tremendous opportunities exist to purchase distressed contracting and construction supply businesses. But this strategy is high risk, high reward. How can you reduce risk and succeed? Three Key Principals are detailed below along with a case study to pull it all together.

1. Cash - It’s Only A Deal If You Can Make Great Money

In setting up a negotiation and purchase price strategy you should look at three values, the going concern value of the target business as-is, the potential value of the target to other suitors, and the value with synergies to you. Pursue transactions with a high synergistic value to you and a low current market price. In assessing other suitors, look around carefully, because of the current difficulty with financing, you may not have any competition. If that is the case, negotiate accordingly.

Yet, it does not really matter how cheaply you are obtaining the business and its assets if you cannot redeploy them in order to make a significant return on your investment. Make sure you have fully evaluated the financial impact and the cash flow requirements arising from your acquisition. Often the biggest risk in these transactions is the amount of time you will need to carry the business with negative cash flow. The immediate risk is running out of cash and ending up as a distressed seller yourself. The long term risk is that you lose so much from operations that your total cost of ownership including loses is too high to recover when the economy, revenues, and profits return.

2. Knowledge - Know the Industry

You must be able to dissect the company being sold and understand why the company is underperforming and how you will rectify the situation. Are there synergies from combining operations? Will the customers transfer? Is it a poorly managed business with a great location? Is it a case of too much leverage? How and why will you do better?

Be honest with yourself. For instance, if real value will come through getting the target business out of an expensive long term lease because you already have facilities in the local market, make sure you really can terminate the lease.

3. Vision - Negotiate A Complete Deal

Negotiating the best price is important but you must understand how this business integrates into your existing business. How will the larger entity work? Will the cultures mesh? How does two plus two equal five?

You must also be sure that all liens can be released and tailing liabilities will not surprise you. (Don’t ask the guys who purchased a major hardware supplier about buying back returned goods, lots of returned goods.) Is the intellectual property transferable to you? Work fast but be thorough.

Case Study

A typical distressed business transaction revolves around an asset rich business which is underperforming often because of the economic cycle more than mismanagement.

For instance a construction equipment rental business is having difficulty maintaining bank lines. The Company has $5 million of equipment when purchased new which would have a “normal” market value of $2.5 million used. You are presented with the opportunity to buy the business and equipment for $1 million because this branch has never performed to expectations. Of course the business is losing about $250,000 a year at the time of the proposal.

In this case the buyer is an out of town competitor that would like to get into the business. Cash is tight for the buyer but they have some remaining credit lines with larger banks. The buyer assumes existing loans for most of the purchase price and hopes the economy turns in order to bring down the losses of current cash flow. The buyer has estimated three years to cash flow break-even and then significant profits for five to seven years. This scenario while not guaranteed makes sense for this buyer and the buyer proceeds.

It takes cash, knowledge, vision, a plan, and execution. When properly implemented, buying a distressed business can provide significant returns and is an excellent way to grow your contracting or supply business.

First Published in the March Issue of the Building Congress Bulletin, Vol. 10 No. 3 http://bcebaltimore.org/ for direct link to article (page 5) http://bcebaltimore.org/Portals/0/March%202010-Revised%20Bulletin.pdf

About the Author: Gregory Caruso, CPA, Attorney, Certified Valuation Analyst, is a Principal at Harvest Associates in Baltimore, Maryland. Greg is an expert in privately held business valuation, succession planning, and mergers and acquisitions with over 20 years of experience. He is author of the book 11 Secrets to Selling Your Business. www.Harvestbusiness.com 410-507-5441