Free Advice

Grow or Perish? 
What does it Really Mean?

In the last month I have read or heard something on the title subject at least three times. Always, the point being, that if your business isn't growing it's dying. I've written in the past that our system is based on a growth model. If growth stops, the house collapses. I've often told business buyers that a business with flat sales is usually a sign of a declining situation.

This is the major reason the Fed and, especially, some major European countries are so concerned about deflation. Managed growth makes future (fixed) payments easier. Deflation causes asset values to fall and if they fall far enough, why make the payments when it's cheaper to walk away from the asset?

It's all relative

A couple conversations with business owners in semi-depressed industries caused me to think this through. The first owner told me his company's sales were about the same as three years ago. To him, that was a major success compared to his competition. The other owner told me that his industry (telecom) was so depressed that he feels good that he's survived as he believes that pretty soon companies won't be able to put any more "band-aids" on their systems and will have to invest in new equipment.

These comments are legitimate. If you've maintained your sales, and more importantly your gross and net profit margins, while your industry is down (or depressed) you may not be growing, but you surely aren't dying. On the other hand, if you're in a counter-cyclical industry and your sales are flat when everyone else is thriving, you're in trouble.

A few examples

The mortgage industry has been in a boom for a couple years now. Any mortgage company, rep, broker or related business that isn't enjoying the fruits now has a serious problem. Since this is a cyclical industry, we know it will change and the company not going great guns now will be in trouble when it 

The two comments above are from people in the telecom and tech-related industries. These are two industries that have been slammed. Surviving is admirable. Maintaining sales levels is quite an accomplishment. Maintaining profits is tremendous. As I tell business buyers, a key is to find a mature, profitable company. One that can survive downturns and be ready to thrive when the good times return.

Here in the Seattle area, and in a few other locations around the country, the aerospace industry has taken a real hit over the last two years. Lots of closed shops. Many small firms squeezed by Boeing. Many who worked primarily for Boeing's first layer of prime subcontractors saw that business pulled back so these first line subs could keep their people busy. Survivors have done the things all business should regularly do including a diverse customer base, diverse industry base and consistent sales and marketing efforts.

Finally, any business that has anything to do with security should be doing well. If not, something is terribly wrong. Over the last six months I met numerous entrepreneurs who have noticed this and figured out a way to become part of it. Similar to not doing well is having security products but concentrating on something else.

There are many people who believe now is a great time to buy a business. When the economy turns they'll be ready to capitalize on it. Of course, many potential sellers realize this. As one told me last week, I know what my company will sell for now. I know what it will sell for in a couple years when we're back where we were (and should be). Even though I'd love to sell and retire, I think I'll wait. Since he's in a depressed industry, that makes sense (since he's not forced to sell now). If he was in an industry not affected by the current economic conditions, that strategy could backfire.

© Copyright John Martinka 2003. All rights reserved.