Four Venues To Organic Growth

Introduction

Exponential organic growth that is both planned and executed orderly leads to increased profits, higher valuation, increased brand equities and shareholder value, and thus wealth creation. This contrasts with lifestyle-oriented businesses, which grow slowly or become stagnant and where the objective of the business is to support a lifestyle.​

This document briefly outlines four organic venues for growth, deployed under a “Portfolio” of capability concepts leading to wealth-creating business models. ​

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This “Portfolio” of capabilities includes the following:

1. Best-in-Class Direct Sales Model​

2. Alternative Distribution: Channel Distribution & Partnering Relationships​

3. Integrated Business Development Process of Marketing, Direct Sales & Operations​

4. Effective Customer Lifecycle Management

Four Ways

#1. Best-in-Class Customer Acquisition Model

A process- and metrics-driven direct sales customer acquisition model for B2B companies is needed to transform event-oriented sales approaches that rely on one-time events, referrals, founders, and principle selling to an efficient system that is scalable, consistent, and cost-effective. The majority of small businesses have a cyclical and unplanned customer acquisition model, which generally is oriented toward founders or principles and that results in higher cost-of-sales, under-utilization of resources, a long sales cycle, and unpredictable revenue generation.​

​A well-defined customer acquisition model is essential for both exponential growth and institutional investor funding. For a small business to be considered “investment grade,” the following components are required:​

1. Proven and compelling value proposition with proof of concept customers for each defined target market and product/service category;​

2. Repeatable (highly consistent average revenues, sales cycle, and price) and well-established and forecastable pipeline;​

3. Top quartile performance for customer acquisition cost, average sales price, and sales cycle time as benchmarked against competitors and/or industry standards;​

4. Understanding of net present value (NPV) per client, unit of one margin effects, and operational impact of each new customer by type and product/service; and​

5. “Best of Breed” most cost-effective business development model in the industry sector (lower percentage cost of customer acquisition than competitors).​

​There is a simple two-part test to determine if a business has a defined customer acquisition model:​

1. Part One: Is customer acquisition cost below 20 percent of first year’s revenues? And​

2. Part Two: Is today’s WAPV (weighted average pipeline value) 5X the revenue goal for the next twelve months?​

If a business cannot definitively answer YES to the above two questions, there is substantial room for improvement.​

#2. Alternative Distribution: Channel Distribution & Partnering Relationships

Determining the most economically efficient distribution channel(s) is often the key to fast-growth sales and lower customer acquisition costs. Whether a direct or multi-channel approach is needed depends upon each situation; however the majority of businesses underestimate the value of establishing robust channel and referral programs.​

​Relying exclusively on a direct sales approach generally results in excessive customer acquisition costs. Unless a business’s average direct sales are $200k annually or greater, most of the business must come through alternative distribution or transaction sales to effectively compete with larger competitors.​

Executives often develop their salesforce based on their previous experiences or industry standard norms. Both can be flawed rationale and too often impede valuation as copy-cat strategies are not the most efficient venue to increase shareholder value.​

When alternative distribution is created and established, wealth is created. For example, the financial advisor sector, retail securities distribution, in the 80s was ruled by Wall Street firms. Mr. Edward Jones saw an opportunity in a different distribution model that combined both direct sales and distribution partners. Mr. Edward “Ted” Jones, saw the value and opportunity of having “personal” financial advisors, credentialed by the centers of influence, including: bankers, lawyers, and other professionals providing referrals, “New Clients,” that effectively enabled Ted’s vision of bringing “Wall Street to Main Street”. One of the most successful attributes of the EdwardJones Company is that 90% of all new clients come from these influencers/referral partners; thus, the EdwardJones Company is one of the great American service business success stories over the past three decades. ​

​Developing alternative distribution can take many shapes and forms, but it takes guts to buck industry norms and experience and wisely develop robust distribution capabilities that lead to above industry average returns.​

​Therefore, emerging business founders and executives should make alternative distribution a core competency of their business model if they desire to achieve institutional wealth. ​

#3. Integrated Business Development Process of Marketing, Direct Sales & Operations

Integration of marketing, direct sales, and the alternative distribution partners is critical and required to create consistent and increasing demand curves, lower customer acquisition cost and the best utilization of every marketing and business development dollar. ​

​Lifestyle businesses generally “disenfranchised” the aforementioned and, as such, are event-oriented and have high cost of customer acquisition. Lifestyle businesses are economically inefficient and lead to choppy and unpredictable demand and pipeline dynamics.​

A common mistake in service-oriented businesses is separating marketing and sales into two functions. Since marketing’s job is to support sales, having one integrated function focuses all activities on driving value at every stage of the pipeline from 0 percent (before introduction) to 100 percent (customer close/win).​

Viewing marketing and sales as one integrated process forces companies to treat customer acquisition as a process and to focus on the right activities/outcomes, which generate lower customer acquisition costs, higher average sales prices, higher earnings for sales personnel, more productive employees, and satisfied customers. An integrated process enables firms to forecast issues, identify causes, and take action.​

Growth firms spend 5-10 percent of expected revenues on marketing. Lack of marketing (i.e. front-end pipeline activity) means that sales reps have to find prospects, educate prospects on why to buy, identify their pain, consult on alternatives, drive solution selection, and work the deal through contract to close. ​

​A focus on non-bulls-eye prospects is a waste of resources. Effective marketing is an essential component of any fast-growth company as it ensures people are focused on the right activities with the right prospects at the right time.​

#4. Effective Customer Lifecycle Management

Effective Customer Lifecycle Management ensures that the company achieves the maximum amount of revenue from the targeted and client company through a planned time horizon. Effective Customer Lifecycle Management initiates with knowing the total value and cost of each specific customer acquisition for each product and service level. Second, consumer/prospect categories are then developed with appropriate business development strategies for each customer segment. Because time is precious, focusing on only the most qualified buyers versus a shotgun-scattered approach is essential for any firm without an abundance of capital.​

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Customer Lifecycle - Ten Key Success Factors​

1. Know the cost and value of each additional customer​

2. Treat each customer and product/service category as a distinct P&L​

3. Map the Customer Lifecycle from the buyer’s perspective, from the day that interest is shown in the company to the tail period of the relationship​

4. Implement a customer satisfaction index that indicates when customers are or are about to be unhappy and drive action to ensure customer retention​

5. Understand why every customer:​

   • Buys​

   • Stays​

   • Refers​

   • Leaves​

6. Focus business processes to serve and extend customer tenure​

7. Implement rewards and incentives for employees that are based on Customer Lifecycle key performance indicators​

8. Continuously search for and improve on what make customers “sticky”​

9. Benchmark your Customer Lifecycle against industry leaders​

10. Learn from the Customers on “What was valued the most?” and include that knowledge in all sales and marketing efforts​

Conclusion

​Successful portfolio-driven and multi-venue revenue growth that will exceed 25% CAGR annually will generally not occur with single-threaded distribution models. It has only been on a rare occasion that, in our 18+ years, we’ve seen greater than 25% annual revenue growth result from single-threaded models. ​

At Ephor, we realize that building a “Portfolio” of customer acquisition venues is difficult, time-consuming, and can have a negative effect on short-term profitability. However, we have never experienced a situation when the company’s leaders have committed to this “Portfolio” concept, invested the time and capital to implement these core competencies in their business, and not realized the creation of institutional level wealth.