By Bridget McCrea
The U.S. construction industry is booming again and economic indicators are largely positive despite the cloud of uncertainty that's hanging over the nation during the initial months of the new presidential administration. Despite this volatility, at least one thing is for sure: this is no time to sit on your hands, batten down the hatches, and hope for the best. There's new business to secure, new employees to bring onboard, and new expansion opportunities waiting right around the next corner.
In this article series you'll hear what business experts have to say about three different growth approaches that all distributors should be thinking about right now—hiring new employees; finding new customers and market opportunities; and expanding by opening new branches, merging with other companies, or simply getting a few more square feet under an existing roof.
Read parts 1 and 2 of this series here:
In this three-part series, experts will weigh in on three growth strategies: hiring new employees, finding new opportunities, and expanding your distributorship. In part I, one expert advocates for the strategy of hiring for the future,
and not just for the here-and-now.
Take a step back, look at the big picture, and figure out a few new ways to fill that sales pipeline.
New Branches, New Opportunities
If there's one thing that tends to send a shiver down a distributor's spine, it's the thought of opening a new branch or buying another, existing company. For unlike hiring employees or expanding into new markets, both of these propositions require a major investment in money, time, human resources, and even real estate. And while the payoffs of physical expansion can be readily apparent, the actual act of opening a brand new location or adding a new company to an existing portfolio is anything but easy.
Linda Henman, Ph.D., of Henman Performance Group in Chesterfield, Mo., works with a lot of companies that are interested in physical expansion. She says her first advice is usually to figure out in advance if getting bigger is the right answer. For example, if your company wants to expand its market share, then it may not necessarily always need a physical branch in a specific location to achieve that goal.
And in some cases, acquiring an existing firm (e.g., when that company already has substantive market share but its owner is retiring or the firm simply isn't meeting its targets) may be cheaper than opening up, staffing, and ramping up an entirely new branch. "Here in St. Louis, organic growth is limited because there are already so many companies in their respective spaces," says Henman. "However, if one of those players is a second- or third-generation mom-and-pop business, then buying it could be a good play for a distributor looking to expand."
Sitting on Some Cash?
Henman says she's seeing more companies take this tack, mainly because so many are sitting on extra, post-recession cash that they aren't quite sure what to do with right now. "Companies have been amassing cash and are out there looking for opportunities," she says. "Whether that means opening an new location to complement your existing portfolio, or buying someone out, the end results can be favorable when the opportunity is right."
Henman says electrical distributors that are in the right position to expand should definitely put some time and effort into doing so now rather than later, knowing that the competition is probably also sitting on extra cash and looking around at the market right now for new ways to grow their businesses. "Set your targets and your criteria and then move forward," Henman says, "understanding that your competitors are probably exploring the same opportunities."
And if opening a new branch sounds like a more viable approach, Henman says the question to ask yourself is: Why do we need this new branch? Remember that this move will likely increase your company's fixed costs (i.e., to cover the real estate, overhead expenses, inventory, staff, etc.), she notes. So if you're only opening the branch to serve a single, large customer in a specific region, be positive that client is going to stick around to make it worth your while. "Make sure you have clear evidence of the potential return on investment (ROI)," Henman says, "before you go out and start putting a lot of money and resources into a new location."
The good news is that—despite the uncertainty currently swirling around the new presidential administration and its proposed policies—the U.S. economy is expected to continue down a fairly strong path throughout 2017. This should be music to the ears of the distributor that's been holding back on investment and expansion over the last few years.
"We're at a point where there's no real reason to be 'uncertain,'" Henman assures us. "Things are improving, and all the evidence points to a strong business environment. This is the time to be bold; if you're not, your competitors will be."
Tips for Success
Heidi Pozzo of Pozzo Consulting in Portland, Ore., says physical expansion doesn't have to be limited to certain, close geographies. If, for example, your distributorship has been largely focused on the Southeast over the last 10-20 years, then now might be a good time to "go west" as they say, and find new markets on the opposite coast. "Acquiring an existing company that's on the other coast can create some real economies of scale for the combined firm," says Pozzo, "and help the distributor gain scale."
To achieve the best results from a merger or acquisition, Pozzo says electrical distributors should focus on the customers and employees of the firm that's being acquired. Don't leave them hanging and wondering, she cautions, or you may find yourself scrambling to refill both the customer and the employee pipelines in short order.
"When you decide to do an acquisition, addressing the needs of the constituents should be top priority," says Pozzo. "In fact, it's vital to the long-term success and engagement of employees and customers alike. When this piece isn't handled correctly, companies can wind up with a lot of customer attrition and a loss of key talent."
What's Your Vision for Success?
In Mergers and Acquisitions: A Checklist for Success, BrandingBusiness tells company owners and managers to ask themselves these five questions before getting into a merger or acquisition agreement:
- What's the strategic rationale for the merger/acquisition? Is it to increase scale or expand scope and value proposition? The answer to the scale-or-scope question affects a host of critical decisions.
- Is this an acquisition or a "merger of equals"? This is an important question, linked to the previous one. In a merger of equals neither party wishes to be perceived as being acquired and a "we" vs. "they" soon sets in the respective companies making any decision extremely challenging and often resulting in compromises that are not good (let alone ideal) for employees, executives, customers, and investors.
- How is the company being acquired? Understanding the balance of power (follow the money) will ensure you can successfully navigate the politics that are intertwined with decisions and outcomes.
- Are there corporate restrictions? Regulatory approval and the legal status of a company (private versus publicly traded) can greatly influence brand integration approaches and restrain communications at a time where speed and proactivity are essential.
- Are the cultures compatible? Cultural differences are the number one reason that most acquisitions and mergers fail. It's a fact. So, assess the cultural compatibility of the company you're acquiring and merging with.
Click here to read the full article and all of BrandingBusiness' M&A strategic recommendations.
McCrea is a Florida-based writer who covers business, industrial, and educational topics for a variety of magazines and journals. You can reach her at firstname.lastname@example.org or visit her website at www.expertghostwriter.net.