By Gail F Lieberman
June 10, 2010
In anticipation of a medium-term economic recovery, companies which have survived a difficult 2009 and are now thinking about how to position for growth are finding that capital is still relatively scarce.
The funding environment is not being responsive because of general economic malaise, future market uncertainty and the need to recover from the sins of the past. Senior bank debt is at best difficult to obtain. Receivable financing usually involves owner guarantees. Mezzanine financing, although available, is very expensive and usually includes equity kickers. Venture and private equity financing has become more difficult to obtain as credit sources for these sources of capital have dried up. More creative strategies such as ESOPS have large fees associated with them. And there is clearly no liquidity from the public market at present.
Many companies, because they are so busy managing and operating their businesses on a day-to-day survival basis, have focused on managing expenses. It is time to refocus investment dollars and management attention to driving organic revenue growth.
This article reviews and describes several ways to drive revenue - the only alternative available to companies today.
1. Consult with your management team. Your own people usually have good ideas about your products, pricing and service. Examine your existing products and services and your existing customers for money left on the table. Do you need to reinvigorate your sales force or service department? Do you need to revisit your pricing policy? Is there a place for family pricing or pricing volume discounts? Have you thanked your customers for their business by offering extended service for additional sales? A publishing company was struggling with the decline in print advertising and the commoditization effect of electronic revenue on the print publication. They offered ad program discounts for electronic placement available only to their print customers.
2. Communicate with your customers. Survey your clients to determine their satisfaction level with your products. What are their points of pain? What inefficiencies are they experiencing? Determine the low hanging fruit where you can improve customer service, offer product line extensions or better serve your customer. A bottling company found that its customers had trouble removing the aluminum insert that fits tightly around the top of the bottle. Fixing the problem required only a slight modification of the manufacturing process and resulted in increased sales and customer satisfaction.
3. Regain past and lost customers. Gather and analyze information about customers who haven’t used your product in the last five years. Determine the reason they are no longer your customer and attempt to win them back. If you don’t have someone to focus on this initiative, there are firms you can hire who specialize in customer retention.
4. Form strategic relationships. Determine the companies that sell compatible products to customers you would like to reach and form strategic partnerships with them. These partnerships can be purely revenue share based, involve cross-selling benefits, or involve mutual product development. They help extend your sales reach, often reaching customers beyond your geography or in a different sector. A financial software company employed an OEM strategy not only as a means to increase sales but to reach corporate customers who have a longer sales cycle.
5. Think creatively about resources. One example: down economic cycles increase talent availability. A company, which had been operating regionally, wanted to extend its geographical reach. In this difficult environment, it was able to hire a very strong retired marketing/sales executive who was compensated almost exclusively on a commission basis, and in turn recruited and hired salespeople on the same basis across the country. This is also the time of year when college students are looking for unpaid internships.
In summary, these are challenging times. Without willing lenders or investors, your only source of capital is the revenue you generate. It is the best source of financing because it is interest-free, requires no distribution of equity, and has the positive effect of growing your business and increasing its value.
Gail F Lieberman is Managing Partner of Rudder Capital LLC, located in CT, advising companies in the sales process. She also advises CEO’s and is a board director of Dara Biosciences. She can be contacted at Gail.Lieberman@RudderCapital.com.