How growth temptation can leave your company in ruins

Part 2 of a 2-part series

In this 2-part series, I previously discussed the difficult situation of a turnaround strategy and why you should consider outside executive support to uncover new growth opportunities. Now, let’s venture to the other end of the spectrum; the thrilling experience of a growth acceleration strategy. I’ve been fortunate to experience both turnarounds and hyper growth business cycles.

Remember the first time as a kid when you earned a double-scoop ice cream sugar cone?  You were part of the big kids now and didn’t have to use a cup reserved for toddlers.  Only problem is you weren’t expecting that second scoop to melt so fast and suddenly you have chocolate ice cream streaming down your arms onto your brand new white pleated shorts.   

As you grow your company it’s kind of like adding more scoops to the organization and if your business is experiencing a growth cycle, congratulations, enjoy the ride!  However, this ascent is riddled with risk and you must be careful not to melt the company with too many scoops of ice cream.

Private Equity example of growth acceleration

Recently, I was speaking with a private equity (PE) executive while we were discussing this very subject and he shared an excellent example with me that I’d like to share with you.

In his opinion, S’well Water bottles did it wrong and Swig Life did it right.

S’well water bottles are a great product and experienced a rocket ship of growth. They placed these bottles in every corporate office driving exponential growth reaching $100M of revenue. That is certainly impressive growth for a commodity such as a water bottle.  However, before long this PE executive accumulated 10 of these S’well bottles from various conferences and no longer had a use for them, losing its perceived value.  Meaning, S’well targeted a very narrow distribution strategy to the same “repeat customers” (these executives didn’t necessarily ask for the product, it was given to them, and paid for, by corporate sponsors) without offering anything new or inspiring new desires. 

During this period of hyper growth, S’well did not think through GTM (go-to-market) strategy, product development or distribution strategy, never developed a product roadmap, and over distributed in only a couple sales channels (i.e. put all their eggs in one basket). The result was revenue growth soon hit a wall forcing the team to course correct their mistakes.  To be fair, S’well also inspired a long tail of competitors to get in on the action so they had first mover advantage.

Swig Life bottles on the other hand, had a very similar product as S’well but placed a strategic focus on collections and patterns, creating a product roadmap from day one. While Swig Life’s growth was slower than S’well’s, they still grew fast but consistent, focusing on solid sell throughs, with a diversified multichannel distribution strategy while following a methodical product road map. Thus, they have created a sustainable company. From a private equity investors perspective, this is the preferred way to build a sustainable business.

One could argue that these two companies offer a different investment thesis. S’well is more of a venture capital (VC) opportunity with a focus on hyper-growth, and Swig Life is more appropriate for private equity (PE) with a focus on contained growth and emphasis on profitability. Fair enough. 

The difference between Private Equity vs Venture Capital

Private equity firms generally take a pragmatic approach to investing and their primary focus is EBITDA (Earnings Before Interest Taxes, Depreciation and Amortization) , a metric of operational profitability, which naturally leads them to later stage companies. Venture capital (VC) on the other hand, is a more wild west type of investing and places much bigger gambles on early stage companies, many of which are pre-revenue or unprofitable, who have the potential for disrupting a large addressable market. However, even VC’s are now pulling back on these wagers and placing a stronger emphasis on profitability. The party, as they say, is over (until the next bull market).

The lessons of a sustainable growth strategy

The lesson is, growth strategy must be grounded in a solid strategic foundation and while it’s tempting to keep driving revenue in one main point of distribution, revenue can rapidly decline creating financial collateral damage. It’s a wonderful feeling when your product has achieved product-market-fit (e.g. right product, right pricing, solving a real need or desire for a large customer base), however, you must have a strategic roadmap to keep the company sustainable. Too many companies take their eyes off profitability with a “growth at all cost” mentality. That’s easy to do when investment capital is cheap but as the US economy is barreling towards a recession, it’s wise to pump the brakes if the growth is not yielding acceptable margins.

Case Study: the rise and fall of a global footwear company 

I witnessed a hyper growth disaster early in my career with a company who once had the design & distribution license for Diesel Footwear.  For those around in the early 2000’s, Diesel footwear was the hottest fashion item in the shoe industry.  At the time, I was just starting my career in the Bloomingdale’s corporate buying office and we could not keep Diesel sneakers in stock; they sold out as soon as we received them as did every boutique store in NYC and around the globe.  This footwear licensing company went from $0 to $250M then back to $0 in a matter of a few years.  It was great until it wasn’t.  In short, this now defunct company, added too many brands (e.g. scoops of ice cream) to their portfolio while selling to the same distribution channels.  Cannibalization reared it’s ugly head as they traded sales with one brand for another while their costs continued to rise as they had to duplicate product development, marketing and other expenses to build each brand.  Clearly, this was not a sustainable strategy and the company melted into bankruptcy. 

What to do, and what not to do when growing a business

Having driven sustainable growth acceleration strategies for many successful businesses, I can help your company win market share with both strategic planning and execution. That’s how I provide value creation.

Allow me to fill this executive sales, strategy and growth role within your business to help you achieve the next level of revenue for a fraction of the cost of hiring an in-house executive. Please reach out and let’s discuss how I can help your business grow revenue.