Industry blogs and trade journals write incessantly about how to grow a retail business in today’s Omni-multi-dystopian channel world.
Much of what I’ve read focuses on topics like merchandise productivity, new customer acquisition and marketing effectiveness. All these are on an upward trajectory in a growing company, and heading downhill when a company is shrinking. The bigger (and harder) question is why this is so, and what you can do about it.
I’ve seen many companies with good people and sound strategies get stuck on a revenue plateau. Everything that worked to grow to that level still works, but the strategies no longer produce growth. As the business flattens out or declines, profits also start to erode, because costs still go up. These companies resemble a goldfish that has grown to the size of its fish tank, but can grow no further. The water starts getting cloudy, very unhealthy looking.
At first these companies point to factors outside their control. “The economy is bad for our sector.” “The weather has been too warm or too cold.” These can be valid, short term reasons. External factors do matter.
However, if growth doesn’t soon resume, you have to look elsewhere. There are two primary factors I’ve seen that produce a growth plateau:
- The environment inside the “fish tank”. A fish needs clean, aerated water and nutritious food to grow. For a business, the analogous environmental factors include the skills of the people inside the organization, how well they work together, the standard operating processes and practices, the compensation strategies employed by senior management and the resources available.
- The size of the fish tank. The owners/entrepreneurs/key executives define what a business is all about. Who are our customers? What problem do we solve better than other alternatives? Are there enough customers with this problem that it is worth solving? How valuable is it to the consumer to solve this problem? How do we solve the problem at a price that covers our expenses and leaves room for profit? Where do we want to be in five years? The answers to these questions define the market opportunity (tank size) for the company.
One path to growth is to improve the internal environment. This can include training for employees (including the CEO!), hiring folks with skills the business is missing, changing inventory and buying practices, evaluating merchandise and marketing effectiveness, raising outside capital, redesigning the store, catalog or website, etc.. It’s the type of stuff that consultants and vendors write a lot about.
Another way to grow is to redefine the size of your “fish tank”. I’ll use Amazon to illustrate the point, since they seem to be the “go to” retail example these days.
Do you remember when Amazon sold only books? If Jeff Bezos had defined his business as delivering books that shoppers can’t find in bricks and mortar stores, he’d likely have been (moderately) successful, but would also have built a much smaller and less valuable company. Instead, he defined a much larger business, a larger fish tank.
Practically speaking, what I call “defining the business” is the same as its mission and vision. It’s not “feel good” stuff. It’s real answers to the questions listed above. It requires knowledge about the marketplace and insight into the direction the market is moving. Although an outside facilitator can be valuable in addressing these issues, only you and your team can actually answer the questions.
Most businesses, when they are not satisfied with their growth, look at the internal factors, the environment inside their fish tank. They hire consultants, make changes in agencies, get new software, re-engineer processes, fire and hire employees. And many times that is the best answer.
I challenge you, though, to spend a day or two at the end of the year thinking about the current definition of your business. Do the people working in the business know and/or agree with the definition? Is it explicit and crisp enough to allow for effective execution? Do you have a big enough fish tank or is it time to expand? These are questions worth thinking about at least once a year, particularly before you make big changes to your environment.
If you need help thinking about those topics, there are several resources I recommend. Vistage (www.vistage.com) and Entrepreneur’s Organization (https://www.eonetwork.org/) are international organizations that offer educational and coaching resources to entrepreneurs, CEOs and key executives. I’ve found both helpful over my career. Likely someone from either group is near you. My partner Allen Abbott is also very skilled at helping retail executives think though the “business definition” questions. Ask him about a company he worked at previously, Exposures, if you’d like a real case study about how answering these questions well can lead to growth. You may also reach out to me at anytime as well.