Are you finding it tougher and tougher to maintain growth and market share? Do your competitors seem to have some edge that you lack? Do you ever get the feeling that new-business development is playing a more important role in your company's fate? I'm not surprised, and you are not alone. Either you're caught in a down draft in our increasingly turbulent economy, or you're doing business with a company that is.
The down drafts are part of an economy that last month I compared with a huge thundercloud -- peaceful and generally unchanging when viewed from the outside (in the aggregate) but chaotic on the inside. The cloud is dominated by hundreds of thousands of rapidly rising companies (mostly smaller in size) offsetting the declines of hundreds of thousands of rapidly sinking ones (mostly larger). For any business selling goods or services to other businesses, these updrafts and down drafts mean trouble, or opportunity, or both. Understanding the activity in the cloud will help you understand the companies you're selling to now, and the ones you might want to be selling to instead.
Historically, many businesses have focused their marketing and selling efforts on larger companies because these are the easiest to identify and the most efficiently reached. Unfortunately, larger companies have been particularly prone to finding themselves in a down draft. During the years 1980 through 1986, Fortune 500 companies alone laid off a net 2.8 million workers -- the rough equivalent of today's entire labor force in Massachusetts. Large corporations have been the most severely affected by international competition, an overvalued dollar, and a host of other problems.
Yet while so many large businesses have been struggling, nearly 10 million jobs have been added to the U.S. economy. Virtually all of that growth on a net basis has come from companies with fewer than 100 employees. And most of it comes from a relatively few businesses buried in a sea of some 7 million others that are scarcely changing. Figure 1 shows that over the past five years, the top 5% of companies, ranked by growth, created 83% of the jobs added by all companies that existed at the start of the period. The top 10% created 93% of all new jobs.
Ranked Percent of Gross
by Growth New Jobs Created
Top 5% 83%
Top 10% 93%
Top 15% 98%
Almost every new job in the United States is created by a small group of fastest-growing companies. (The percentages represent "gross" additions, not percentages of "net" new job totals that would result after subtracting job losses by declining companies. The percentages of net new jobs created by rapidly growing companies are well over 100%.)
What more is known about these select rapid growers? Usually, they start very small. As figure 2 shows, a large majority of the past half-decade's fastest-growing enterprises began the period with fewer than 20 employees. Also, they are volatile. They grow, but not on a consistently rising line. Of course, the discovery that growth and volatility go hand in hand should come as no surprise. Risk, growth, and uncertainty are all parts of the same equation. FIGURE 2
Percent of Percent of Indicated Rapidly Growing
Companies, Companies that Started
Ranked with Employment of:
by Growth: 0-19 20-99 100-499 500-4,999 5,000+
First 5% 63.7% 24.3% 8.5% 3.0% 0.4%
Next 10% 79.5% 17.0% 3.1% 0.5% 0.1%
This newly turbulent economy has brought managers an enormous marketing challenge. The old tried-and-true customers who used to buy a lot are struggling. And their places are being taken by a relatively few rapidly growing, unstable companies, most of which emerge quickly out of a morass of 7 million smaller concerns.
These companies -- tomorrow's expanding market -- are tough to find exactly when you most want to find them: at the point when their growth creates huge needs and when they are forming their first (and perhaps lasting) bonds with suppliers. To capture them as customers, you must switch from doing an excellent job of selling to a few obviously visible companies to doing an excellent job of selling to a few mostly invisible smaller companies. The latter will become the big companies in the near future; today they represent virtually all the growth in the economy. A real change is taking place, and you are going to have to change with it. If you wait for the new crop of companies to "grow up," there is a good chance your competitors will already have nailed them down as customers.
And if you succeed in finding the next crop of rapid growers? Then your marketing task will be complicated by their volatility. Their growing pains and fluctuations of fortune will become your problems. Still, your understanding of their volatility could become a major selling point if you can tailor your product or service (and the terms under which you offer it) to your customers' ups and downs.
The struggle to meet these challenges will likely be worth-while. It is hard to imagine that companies that locate and successfully cater to the rapid growers will not be richly rewarded.
However, a few cautionary observations are in order. While trying to capture the major source of growth in the economy, you can't afford to ignore several other groups of companies. The first are the growing businesses that happen to be large. In many cases, these are rapidly growing, small companies that simply outgrew the "small" category. Their founders may be still directly or indirectly involved. WalMart Stores, Compaq Computer, K mart, Digital Equipment, Federal Express, and Mrs. Fields Cookies come immediately to mind. Such companies are obviously not to be ignored, but the competition to win their business is very intense.
Large, declining companies also may be perfectly acceptable targets for particular products or services: consulting services, for example, or real-estate management (to deal with the consolidations taking place), and of course outplacement assistance, whose entire purpose is to help declining companies in the process of finding jobs for the workers they no longer need.
Last, but certainly not least, is the vast pool of steady-state companies -- a pool that includes the majority of companies in our economy. These businesses don't change much (nor do their needs) but their number is large. They all need to replace the supplies they use, the people who leave, and the equipment that wears out or becomes obsolete. And they all need to manage their money, their travel, their retirement plans, and their insurance. The problem is that they are much less likely to make a decision in the next 12 months or to switch suppliers at all -- because their world is, almost by definition, in balance. And, most important, they are extremely unlikely to become the WalMarts and Apple Computers of the future. Selling to them is expensive, and the long-term payoff is no greater than the payoff you receive today.
Discussion of other company groups aside, it remains true that a small group of rapidly growing companies accounts for most of the action in today's turbulent economy. Important as that may be, more critical is understanding what kinds of companies you are dealing with in "economic thundercloud" terms. If you want to consciously focus your efforts on large, declining businesses, that's fine so long as you know: first, that that is what you're doing; and second, that in the slightly longer term, your market will be rapidly shrinking. If you want to focus on the Fortune 1,000 and Fortune's Service 500, that's fine too, so long as you're aware that the competition will be very tough and the net growth very small -- if there is any. If you want to market to the large pool of stable companies, that's fine so long as you do so knowing that you are missing most of the next wave of economic growth in the United States. And if you want to identify and sell to this next wave, you should remember that it is a volatile, difficult group of companies to identify and hang on to.
In short, whatever you're doing, you ought to make sure you realize what it is you're doing, and design your products, terms of sale, and marketing strategy to fit the dynamics of the companies you are trying to reach.