Why Sustainable Business Growth Matters—and How to Achieve It

Growth matters! Even during the recent economic recession, surveyed business executives most often list growth as their first priority. And most investors in public or private companies state the same primary objective. But, what is “sustainable growth” and why does it matter?

Sustainable growth means improving top-line growth and bottom-line results on a continuous basis. Sustainable growth improves business value, generates additional capital and operational resources for further growth and investment, and reduces vulnerabilities to financial market disruptions or resource shortages. As a company’s annual cash flow increases, bank debt can be retired more quickly, it can respond to competitors with greater flexibility, and shareholders enjoy enhanced returns.

Sustainable growth is achieved through a combination of three important factors: strategic focus, organizational alignment and operating discipline. The most successful businesses have a strategic focus to grow through a balance of organic sales growth, entering into joint ventures, license or distribution agreements, and buying companies. Organizational alignment means that whichever growth path is chosen builds on the strengths and capabilities of the company and produces an “accretive” rather than a “dilutive” result for the business. Growth needs to produce, not hinder or detract from, further growth. Operating discipline requires continuing evaluation of results, constant improvement in sales, margins and cost reductions, and planning for next steps well in advance.

When these three factors are combined, the result is successful strategic innovation – a disciplined process of generating breakthrough business growth opportunities that create a significant difference in the value delivered to customers, the business and its stakeholders. Less-successful businesses instead seem to rely on an unstructured or haphazard approach to innovation toward growth and this frequently results in uninspired incremental improvements or poor implementation, at best, or no innovation, at worst.

An example of a Wisconsin company on the path to strategic innovation is The Manitowoc Company, which strives to reinvent 80% of its product offerings every five years. Continually reinventing a $4 billion company in a short time period is a truly remarkable response to today’s highly competitive global marketplace.

A strategic innovation process for business growth requires effective analysis, planning and execution. Leadership, culture and systems support each step. Innovation also needs sharp and capable engineers and designers, and marketing and sales specialists who listen to the marketplace for clues and niche opportunities.

For companies that either do not have these resources or are not generating organic growth through new or existing product or service offerings, an acquisition strategy may accomplish the same result, and sometimes more quickly and efficiently. In some cases, the process of developing acquisition criteria may result in identifying innovations to products, services, systems and operations that the company can implement organically. Acquisitions are not always the right strategy, especially for companies that do not have the resources to make an acquisition and maintain and grow their existing businesses. Nevertheless, the learning process of considering acquisitions often helps in the development of successful business strategy.

Strategies for organic growth and growth through acquisitions are best considered in tandem. Together, they provide a competitive edge when it comes to identifying and executing strategies for sustainable revenue and income growth in any industry.

Jim Gettel and Lou Banach are Managing Directors of Schenck M&A Solutions and each have over 20 years of experience in helping businesses with strategic growth. Schenck M&A Solutions is an advisor to privately-held middle market companies in strategic acquisitions, divestitures, recapitalizations, turnarounds and planning.

October 2009