Plans to Grow By
Planning doesn't have to mean pie charts, equations, and reams of paper. It does mean asking the right questions
There may be no word that strikes greater terror in the hearts of entrepreneurs than planning. But planning can be tremendously helpful to growing companies, especially when they reach key milestones: deciding, for example, whether to add new products, increase staff, enter additional markets, or build production facilities. Planning, when done right, also offers owner-managers a fascinating opportunity to step back from the day-to-day concerns of running a business and take stock of where they're going and where they've been. The secret? Throw all those textbook theories and arcane formulas out the window and design a planning process that suits your business, your management style, and, most of all, your routine.
That's what John Shoffner has done -- in fact, the president of $20-million Dura-Line Corp., a Middlesboro, Ky.-based manufacturer of extruded plastic pipes, doesn't even like to call what he does planning. "I certainly don't have goals that are written down," he sniffs. "My objective is simple. I want to grow this business in a strong and reliable way, winding up with a company that is larger and more stable." Shoffner makes no bones about considering the standard planning process to be utterly impractical. "I can't subdivide things so finely that I say, 'I did this today, I'll do this next week, and if I do this and this I'll come out 10% ahead next year.' That's not the way my business works."
Well said. But a few years ago, Dura-Line had reached the stumbling block that slows many entrepreneurial ventures. It had a great product in a hot market -- providing pipes for potable water -- but sales had gotten stuck around the $4-million point. Shoffner, whose father had founded the business in 1971, wanted to reach new markets, add new products, and grow, grow, grow. He just didn't know how to get there. Stagnation is common for companies that skip strategic and operational analysis. But an even more dangerous pitfall for companies is superfast, unplanned growth. It can eat up cash flow, strain credit lines, jeopardize customer service and product quality, and sometimes kill off a business.
At Dura-Line, Shoffner and his father reached an unusual decision in 1985. The founder cashed himself out of the business through a leveraged buyout that made it a division of Jordan Industries Inc., a Deerfield, Ill.-based miniconglomerate that now owns most of Dura-Line. Shoffner explains the logic: "I wanted to grow, and this gave me access to capital financing from a larger organization and, most important, business advice from people who were experienced at helping entrepreneurs grow their businesses fast." Jordan Industries has to date acquired 17 entrepreneurial ventures, most of which fit the Dura-Line profile -- sales up to about $25 million, profitability in strong market niches, and, above all, the desire to grow.
Shoffner's instincts were on target. Dura-Line's merger introduced him to Tom Quinn, Jordan Industries' president and chief operating officer and a truly innovative business thinker. Quinn had learned about planning during the years he pushed an American Hospital Supplies division from $3.5 billion to $4.5 billion in sales. "It was a very formal process -- we had all types of question-and-answer forms, pie charts, experience curves, and much more to fill out." But in addition to these corporate rituals, he followed his own approach to planning: "I'd take my management group away for three days and then write up my own goals on no more than two pages."
When Quinn moved on to Jordan Industries -- a company founded by his old college buddy, Wall Street financier Jay Jordan -- he decided to put his theories into action. He would teach entrepreneurs how to incorporate planning into their own particular management styles, always with the goal of producing growth-oriented strategies and demonstrable results. The results at Dura-Line have been spectacular: sales have grown by more than 140% during the past two years alone, from $8.2 million in 1987 to an estimated $20 million in 1989.
Any planning process worth its salt takes into account two factors: strategic growth, which looks outward at the longer-term prospects for a company's markets, products, and the like, and operational growth, which focuses internally on manpower, capital, marketing, and other company concerns. Anyone who goes through the process knows that these two issues eventually converge; long-term strategic goals necessitate operational decisions that vary from company to company.
Quinn's take on the situation is interesting. "When it comes to the strategic area, going into too much detail is doom -- you've got to broaden your thinking to large issues over the next three to five years. But when it comes to operational matters, you can never go into enough detail. You've got to figure out specific activities and adjustments that are needed over a 6- to 12-month time frame."
That said, it doesn't take fancy footwork to address either of these issues. John Shoffner, iconoclast that he is, says he does his best planning in the shower or while brushing his teeth. Above all, there's no need to write anything down or draw any obscure charts. "The moment a plan is committed to writing, it's almost obsolete," Quinn emphasizes.
He goes on to explain, "To be effective, planning has to be an ongoing, fluid process that adjusts to the daily realities of running a business." Some managers might want to spend a few minutes considering planning issues each time they review cash flow or sales figures, perhaps on a weekly basis; for others, the process of thinking about growth becomes so much a part of their regular business routine that there's no need to set aside time. As for the onerous task of daily committing goals to paper, whether it's done is entirely up to the individual manager. Like Shoffner, many of Jordan's division presidents don't bother.
Here's how the planning process works: basic questions get asked -- usually by Quinn, who prides himself on playing devil's advocate. On the strategic front, the questions are broad: what will happen to the markets the company is in over the next few years? What products will we need to service those markets as they change? How will we have to change our current product mix to adjust to those market alterations? What new markets can we serve with existing or new products?
At any company, some of these issues will be more significant than others. If, for example, sales are topping out in existing markets, then diversification is key; if changes in existing markets will broaden sales possibilities, then it's not essential to look for new products and markets.
At Dura-Line, some clear answers presented themselves during Shoffner's conversations with Quinn. The company expected two of its newest geographic markets, the United Kingdom and the West Coast, to grow dramatically. Since both men agreed that further growth was desirable, they recognized a need to broaden Dura-Line's product line and customer base beyond the already crowded and competitive business of potable-water piping.
That led to some pretty specific operational questions: would it be best for the company to buy or build production facilities in the United Kingdom and California? What kind of staffing increases would be necessary and cost-justified? Was the company's sales team adequate to meet its growth goals? Shoffner already ran a tight operation with good control of his bottom line, so Quinn skipped some of his other, standard questions: was tax planning adequate? Was cash flow at its maximum? If so, could it finance growth activities?
Shoffner was concerned during those early days that a preoccupation with planning would cause him to miss business opportunities. Not to worry. After a few conversations about the acquisition, the two learned from a customer contact about an existing facility that might be up for sale. They flew over to Great Britain within the week and agreed to a purchase. Eventually the seller got cold feet -- but even that didn't slow them down. "We were flexible enough to be able to work out a deal that allowed us to set up a new facility," says Shoffner. With the first pipes off the line last February, the entire process, from planning to reality, took just six months.
Reality is the important word to remember when talking about business planning. All the theory and questions and answers in the world mean nothing if the planning process doesn't produce real-life results: faster growth, higher profit margins, better customer service.
At Dura-Line, Shoffner saw plenty of real-life results. Like many other entrepreneurs, he had always had a tough time justifying hiring highly paid people -- even in areas as vital to the future of the company as sales. "But when I asked him questions like, 'If the West Coast market suddenly opens up, how will you sell to it and how will you handle all the extra demand?' " recalls Quinn, "John saw that his growth depended on being able to hire a new salesperson and an additional plant supervisor."
New planners must also be prepared for those agonizing moments when operational answers reveal that certain strategic goals are impractical, at least over a midterm horizon. More frequently, operational planning forces companies to rank their growth goals and strategies. Consider Dura-Line's experience: Shoffner knew that he needed to acquire or build two new facilities in order to reach his new target markets. But given the limits on his own time and management support, he realized that he would have to tackle one expansion at a time. After a few conversations with Quinn he decided it made sense to go after the United Kingdom first, where demand for his product was already so strong that it was distracting Dura-Line from other clients.
John Shoffner is unlikely ever to label himself a strategic planner, but he's more than satisfied with the results of his question-and-answer sessions with Quinn. Now that the U.K. site is nearing completion, Shoffner and Quinn want to act quickly out West. They are actively searching for an existing West Coast production facility. After visiting 10 sites on the market in California, Nevada, and Arizona, they finally found a site they were willing to negotiate to buy.
When they do, you can bet they'll make the decision to buy it on the spot, without time-consuming consultations with financial-planning types back at corporate headquarters. But that's to be expected. After all, action is what planning is all about.
PLANNING ON IT
Throw away the textbook. Here are some steps to make planning for growth work
Here are some simple ways you can keep your company's planning-for-growth process simple, flexible, and effective.
* Start at the top, with the company's chief executive or chief operating officer. They are, after all, the ones who have the best intuitive sense of the company's existing and prospective markets. And never, never, never assign the job of planning to people who don't have other responsibilities at the company -- no matter how talented they are, they won't be able to see how their theories will fit in with the company's business realities.
* Make planning an ongoing process at your company. It distorts a manager's perspective to think about planning questions only at scheduled intervals, whether they're on a yearly or a quarterly basis. Instead, try to incorporate planning into your regular management routine, perhaps on a weekly basis.
* Involve other people by encouraging other executives, bankers, lawyers, accountants, and the like to ask probing questions. Follow the example of Tom Quinn, Jordan Industries Inc.'s president, who did this with Dura-Line Corp.'s John Shoffner. Then discuss your strategies with people from all levels and departments of your own company to make certain that your decisions will be informed and relevant.
* Keep your focus on both strategic and operational issues in order to ensure profitable, controlled growth. Overlooking either factor can be dangerous: ignoring operations can lead to pie-in-the-sky growth strategies, while forgetting about long-term strategic goals makes your future growth almost impossible.