Growth Realization – A Scorecard Approach

Posted: September 10, 2021 in General Commentary, Management, Uncategorized

I’ve experienced lighting directly (as a VP or Director of Design of Design, Engineering and/or Marketing) through 5 very different organizations, and indirectly (as Consultant, contract designer, etc.) through another 7. My roles has always been associated with advancing revenue goals. Over a span of 31 years working with these manufacturers, the diversity of approach has been striking, in both character and realized results. What follows are some observations based on this background.

My philosophy is that growth in the lighting market demands persistent effort on 5 specific fronts. Market intelligence, NPD, marketing presentation, sales channel development, and operational excellence are the common critical areas. The interrelationships of these are perhaps as important as the elements themselves.

  • Market intelligence demands a clear vision of existing position, market trajectory and insight into end user needs, pain points, and future potential demand.
  • Market intelligence is key to NPD focus and success, as well as product line maintenance.
  • Well developed NPD requires great marketing presentation to stand out in a busy marketplace.
  • Without proper sales channel development (internal members and channel partners), the message and NPD deployed will fall short.
  • If the company falls on its face operationally, every other effort suffers.
Backstory Approaches

Every organization I have played a role in has had one common underlying goal – to grow revenues and advance income. Pretty typical. To this end, there were similarities between them:

  • All 12 were struggling to break through a sales barrier that was persistent over several years.
    • 2 were start ups, so were still to see their first million.
    • 1 had made it past the $1MM mark, and building as fast as they could afford to see that double.
    • 1 was working hard to break through the $10MM ceiling for the first time.
    • 4 were trapped under $30MM, having hovered in the $22MM to $27MM for many years with little success.
    • 1 was past the $40MM mark, looking to grow to $60MM.
    • The remaining 3 were large organizations, well beyond $150MM, 1 a division of a $7B organization, the other two independent at the time.
  • All believed that they needed more new product to realize their growth potential, but had not developed a real market evaluation as to what those products needed to be.
  • 10 of the 12 used the normal independent rep network.
    • 2 considered the agencies as sales channel partners, and internally called them “sales agencies.”
    • 8 internally called the agencies their “customers.”

Interestingly, the 2 organizations that categorized the agency network as sales channel partners, led the others in year over year sales growth (in %) by a significant margin, had stronger relationships with their agents, and were most interested in focusing on market research, or innovative new approaches to define next products. New products were presented to the agents for feedback at various stages of development, but rarely for approval to proceed.

Of 8 that considered the agents their customers, performance was the least successful in growing sales, while relying heavily on the agencies to advise them on what new products they should do, or to approve NPD ideas before investing further.

Of the 8 that considered agents their customers, 6 focused NPD effort on competing against an existing product made by others they perceived as competitors (defined by their agent customers). These 6 were the least successful in achieving their growth goals, and in 4 cases, have suffered a roller coaster of up and down years. 2 of these have subsequently lost ground. Interestingly, of those who followed agencies as lead in NPD, only 3 had ever researched line card dynamics to reveal where they might be played to fill a line card, over actual market demand.

The 2 remaining organizations approached the market using other channels. Both met modest sales goals, with significant effort, but were pursuing markets that the agency network does not address well.

Scoring Factors

Based on these experiences, and subsequent research, executive education, and reading, here is a proposed scoring concept and how it stacks up against the 12 aforementioned examples.

Market Intelligence Score (MIS)
Scale 1 to 5: 1 being internal guesswork with no research, 3 being reliant on sales agency input only, 5 being based on objective market research, sales involved, with industry factors and market trends analysis included.

NPD Focus Score (NPD)
1 to 5: 1 being copying competitors, or blindly introducing product, assuming that some will stick, 3 being following sales agency or sales team input based on subjective observation, 5 being objective product roadmapping based on creation of roadmaps, founded on Market Intelligence. In this, quality of NPD releases is more important than quantity.

Marketing Presentation Score (MPS)
1 to 5: 1 being unfocused, irregular communication to the market, uncoordinated effort, 3 being limited channel communication, primarily focused on sales channel, 5 being a broad program that includes Social Media, trade shows, sales channel, and spec or end user customer outreach (articles, CES courses, educational programming, etc.)

Sales Channel Development Score (SCD)
1 to 5: 1 being reliance exclusively on rep network and conventional RSM management under which RSMs are not operating in a coordinated manner, treating each territory as a personal assignment, inside and outside sales members independently managed, 3 being Agency focus with meaningful incentives, agency development planning, and RSM coordinated effort that forwards company messages uniformly, with market feedback communicated to company without qualification, inside and outside forces cooperative but separate, parial applications engineering backup, 5 being Agency development, active regular assistance in-market, coordinated sales management function that is inclusive of inside and outside members, and objective participation in the Market Intelligence function, and full service applications assistance functions in place.

Operations Score (OPS)
1 to 5: 1 being consistent late order shipments, quality failures, slow NPD support processes, day by day management, 3 being good overall management, modest late orders, controlled quality, NPD support, and forecast planning that avoids significant fulfillment issues, 5 being fully planned and organized operation with no late deliveries, no in-field quality failures, consistent product qualities, and frequent customer “delight” experiences.

Management Function Score (MFS)
1 to 5: 1 being thin management structure, or lack of cohesive effort to pull all of the above factors together as a strategic process, 3 being an average organization with some strong leaders, some developing, and others needing improvement, that while customer focused, reliant on petards driven by individuals, that may not be as cohesive as they could be in meeting long term needs, prone to frequent changes in plans in a reactive state, over forward planning and process driven, 5 being a will organized and cohesive management team, few petards, able to make decisions as a team, solid processes in place, that creates, executes and adjusts strategic plans to continually and effectively improve both internal and external experiences with the organization.

Taking these factors together, here is how I score the 12 organizations mentioned before, with their result. I will not share names for obvious reasons. Further, I have fiddled some of the sales revenue numbers to make comparing these to any of the organizations I have worked for impossible. I have also applied some factoring to accommodate the time of my direct experiences, to avoid the results being skewed under economic conditions that are unfair based on timing alone. That said, the general picture of performance remains in tact.

The Scores Applied
5<$30MM11322211– 3%
The Score Card

Keeping in mind that growing a small organization is far less of a task than growing larger companies. 20% at 100,000 is fairly easy to attain ($20,000), while growing 20% at $150MM is more of a reach ($30MM).

That said, it appears that the most successful organizations (2, 3, 4, 9, 11 and 12) share the traits of high Market Intelligence, Good NPD, good to high Operations, and high Management Function Scores, while scoring overall above 20 points (with one exception (4).)

It also appears that organizations with lower scores in Management Function, coupled with low MIS, OPS, and NPD points 1, 5, 6, 7), suffer the least success.

Invisible Barriers to Those Not Seeing

What I have found most interesting, is how often a growth cycle where progress stalls. The first barrier (from my experience) is at $10MM, then $30MM, then again later at $50MM. Some organizations manage to break thru, while others don’t.

These moments may represent limits to an existing organization’s structure, management team, staff capabilities, and/or leadership approach, perhaps even culture. In order to continue to grow, the entire organization must evolve. Failing to make the necessary changes to meet the demands of higher revenue creation creates a wall to further success that is not readily apparent. Most importantly, management function must be able to look beyond past practices to focus on future needs, well in advance of demand. Failing this leaves an organization operating as a $15MM entity, trying to keep up with the flood of $30MM in incoming orders. The result is failures in the Operational function, and a decline in performance in all other areas, as resources are focused on catching up, instead of getting ahead. This leads to getting further behind, with little vision of escape. Sooner than later, the $30MM slips away, leaving everyone feeling discouraged, and beat up. Nobody grows when feeling this way, leading to more loss of progress.

There are also issues of appetite. While everyone likes the idea of growth, it is never free. The higher one reaches, the more expensive in actual dollars it is to secure progress. Frequently, the appetite for growth is choked by the reluctance to spend what it takes to attain it. Holding the organization up to simultaneous high growth and high profit income metrics, may result in a failure to realize both…. simultaneously.

Another barrier rarely considered, is that lighting is but one component of the larger construction market, which will only spend so much on lighting as a whole. That means, in order to grow, organizations must find a way to offer new value that either a.) Displaces what other producers are offering, or b.) Entices customers to choose a different approach through a new product or innovation, that replaces value being offered by others. To this end, the market has a finite capacity to absorb growth from all of the organizations that wish to grow revenues. It may be that the products offered by the $30MM organizations in this study are in segments of the market that simply cannot absorb any additional revenues being drawn out. This leaves everyone in the segment competing for a limited number of dollars. To overcome this requires reaching beyond the current product mix, which emphasizes the need for strong Market Intelligence… a factor that most at this level of business are particularly weak in. Further, to reach beyond an existing position demands strong sales channel function, another area of weakness by all of the players representing the $30MM bracket here.

Invisible barriers will have greatest impact on those with weak market intelligence, that rely on the day-by-day activities in sales as their guidepost. Markets frequently move away from product categories to others. For example, wall sconces are all but gone, while slots of light and cove have exploded (along with the plethora of suppliers to meet that demand – none of which are wall sconce makers). Daily activity will not produce fair warning of this, as it will only show a softening in demand for offered products – while giving no indication of what is needed to replace the lost revenues – especially if the change is to a category not currently in the existing product portfolio. The cost and time to make the transition to a fresher market is too great to accomplish late, as a reaction to decline in a familiar space. The secret is to anticipate change and be there with product at the ready when it happens.

Closing Thoughts

I would like to make the case that every organization I worked with or for has realized a quantum shift in their realizing growth, based on my contribution and brilliance as a thought and inspired leader. This is, of course, not the case. Success is not a single person effort, it is the work of an entire organization, which is why the score card above includes the numerous functional areas. It also requires mutual recognition, a few epiphanies, a unique combination of people that are aligned with one another, enlightened management, and a culture ready to embrace change. This is why success comes to a small percentage of organizations, why so many struggle, and others simply fail.

In my experience as an internal management team member, I have been part of 2 organizations that literally transformed themselves and succeeded well beyond the general market. That is 4 and 9. However, while I believe I played a significant role in the success realized, I was just one part of a total team. In others, I played a role in the larger team, which realized more modest success. Some made progress, and I enjoyed being part of that. Others struggled, and the pain felt was palpable. I have also played a role in organizations suffering unnecessary pain, that I was unable to alleviate. In this, I feel a very real personal disappointment that I was unable to do more, even years after moving on.

This all noted, I can say that organizations in the $20MM to $35MM range face some of the hardest transitional demands of all. What got them to the $20MM threshold often fails them, leaving a disrupted, often confused, and chaotic environment that takes a concerted effort to pass through. Some find that path and the rewards are amazing, others don’t and suffer for years under the weight of it.

Growth, when embraced and supported appropriately, is an amazing thing to experience. The real fun begins when the sustained CAGR is above 25% for more than a couple years. At this rate, capital is available to spend to support further growth, secure the best team talent, to weather the costs of gross improvements needed, and aggressively pursue market intelligence as well as advancing marketing presentation that elevates everything, attracts more talent, leads to more sales, etc… It’s a joyous loop of success on success – assuming the bedlam of expansion doesn’t cause the workings to fall apart. One caution… becoming complacent – assuming that growth is deserved, rather than earned – can end the CAGR party prematurely.

The worst condition to live thru is declining or stagnant periods. In these, capital necessary to dig out is not available, or being held in case of further decline. Talent becomes frustrated, management is more stressed than inspired, and the blame game replaces inspired discussion. The solution is simple, and unacceptable to most in this situation. You must spend like you are succeeding – on market intelligence, on NPD, on Sales Channel Development, on talent acquisition, and on Operational Excellence. It’s a bit like the adage “Fake it till you make it”, but there is truth in that. When capital is tight, the trick is in finding sources of the cash needed, and deploying the most efficient, highest return approaches, with limiting wasted motion, while also avoiding burning out key members from demanding overtime, and assigning them work just because they are the last members standing. The pursuit of managed efficiency not only expands resources available, it tunes the organization to be most profitable once growth is established. Conversely, there is no instance where slashing spending, cutting staff, continual overtime, scrimping on research, taking the darts approach to NPD, or pursuing bare survival tactics leads to growth. These only lead to hardening stagnation, or enforced decline – or worse.

So, go for the CAGR growth party by aiming to push those scores up in all functional areas, and enjoy the rewards of your efforts!

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