Free Advice

Necessary and manageable growth

Over the last few weeks two discussions on a similar subject caught my attention. On Thursday, 11 April, the Wall Street Journal ran an editorial titled “Baby Talk.” It dealt with declining birth rates and that the U.N. projects that by the year 2050 “people over 60 will outnumber those 15 and under for the first time in history.”

The U.N. is alarmed by the “aging crisis” and the WSJ comments that in the West people will have managed to get rich before getting old but in third world countries they will get old before they get rich.

A couple weeks before, on a local radio show, the discussion centered on growth, growth management acts and the like. The point was that we base our whole economy on growth. Real estate especially is based on a growth model. We buy a home, stretch to get the most home for the money and then let inflation make the payments easier (as our income goes up, the payments stay the same). If the local community stops growing, real estate prices decline and soon it’s a house of cards waiting to collapse.

It affects business the same way

This growth topic is similar when it comes to businesses. Businesses are like communities or countries. They either grow or stagnate and die. The same philosophy that says a country needs more young people to become educated, stimulate the economy and provide a tax base to support government services applies to businesses. Companies need to grow, discover new markets, new customers and provide jobs for productive people.

Too often I hear owners says they have planned to not grow. It’s then that the company becomes vulnerable to their competitors. Turnarounds make headlines because they’re rare. Once a company starts the downward spiral it’s tough to revitalize it. Talk to any workout specialist, they get paid well when they succeed because the odds are against them.

I often talk to owners on behalf of my clients who are interested in buying a business. When I hear them say things like “I planned to keep sales flat,” or, “We purposely reduced sales” I shudder. I’ve been around long enough to know that most buyers are going to run. Selling a company with declining sales, especially for top dollar, is tough.

Have systems and quality people

If systems are in place, it really doesn’t take any more effort to grow at a manageable pace than it does to plateau. The goal of any owner should be to surround him or herself with capable people who can manage the operations, marketing and finance while the owner concentrates on strategy and vision. That gives you options.

It’s when the owner “is the business” that make growth tough. I remember one client who would constantly tell me it didn’t pay to train people on routine tasks because he could do the job in 30 minutes and it would take an hour to train someone. He had a tough time realizing that hour would only occur once and he’d have to put that 30 minutes in every day while the low-wage employees would wait for him.

Contrast that with an owner I recently spoke with who spends most of his time at his place in Scottsdale (especially in the winter). He has sporadic contact with his managers and the operation keeps chugging along. When it comes time to sell, believe me, buyers will notice this lifestyle, profits and absentee ownership and be willing to pay top dollar for this type of operation.

© John Martinka 2002. All rights reserved.