Happy New Year! Your Revenues Are $0
The New Year represents a clean slate for your business. You have the potential to completely change your financial and strategic position in 2012, taking market share and growing the value of your business. Instead of unachievable New Year’s resolutions, commit to doing these three things to prepare your business for growth in the year ahead.
1. Determine the reasonable “run-off” of your business.
What would happen if you turned off your company’s growth engine? If your salespeople stayed home and you stopped all marketing, would you continue to bring in revenue in 2012? For some businesses, sales would dry up in a matter of months as the business worked through its backlog. In other businesses, sales to existing customers might continue for years.
It’s important to understand this projected “run-off” of your business so that you can set sales and marketing goals to drive sales above this level. How much of Starbucks’ sales are driven by caffeine junkies who religiously visit their stores? A lot. In this case, it’s important to measure marketing spend against the incremental sales it would generate, rather than total sales. This would explain why most of Starbucks’ marketing dollars are used for in-store campaigns rather than through expensive TV ads.
2. “Zero-base” your market(s).
Your competitors are also starting the year with $0 in revenues, with varying levels of run-off. It’s important to understand how much of your market is “fully baked”—committed to you or competitors based on your strategic assets and other strengths—vs. market share that is in play. You’ll probably find that more market share is up for grabs than you think.
Here’s a historical example to show what we mean: Before U.S. automakers collapsed in the great recession, each year they would tout their market share and state that their goal was to increase share. We all know that they reached these market share goals largely by reducing price and increasing customer incentives—which destroyed profits. Achieving a market share of 30 percent in one year didn’t ensure a market share of 30 percent in the next, because most car buyers don’t purchase a vehicle every year. Automakers essentially enter a completely new market each year in which anyone can capture share.
What steps can you take to grab share that your competitors owned in 2011?
3. Determine the strategic investments you need to make this year to create competitive advantage that will last into 2013 and beyond.
Even if you do grow your business in 2012, you’ll face the same challenge on Jan. 1, 2013. So it’s a good idea to do some thinking now about the investments that will make your life easier into next year and beyond.
For example, what investments can you make this year to increase your market share and reduce that of your competitors? Maybe it’s making a key acquisition, investing in R&D, or increasing brand awareness. Identify these investments now so they can make an impact in future years—so you don’t have to work as hard next year.
KARL STARK AND BILL STEWART | Columnist | Co-founders, Avondale
Karl Stark and Bill Stewart are managing directors and co-founders of Avondale, a strategic advisory firm focused on growing companies. Avondale, based in Chicago, is a high-growth company itself and is a two-time Inc. 500 honoree.