Beefing Up the Business

There have been some instances in boxing history when fighters, having achieved a pinnacle of success in their weight division, yearn to conquer bigger (literally) things and move up one (or even more rarely, two) weight division(s). This normally requires putting on the right kind of weight. Likewise, athletes go through various stages of preparation prior to an important race. Long-distance athletes, for example, will enter a final phase of preparation which will see them eat substantial quantities of pasta in order to load up on carbohydrates, a slow-releasing source of energy which will ‘feed’ them through the course of a long, arduous race.

In a similar fashion, a business will prepare itself for some critical events such as a sale or Initial Public Offering (IPO) by loading themselves with the right sort of business energy. This may include adding more experienced people to senior management, in the form of Non Executive Directors, for example; it may imply bolstering the sales force to make a final push before the big event, and to show growth in the headline revenue numbers; or, as it often does, it may mean being physically present in more markets, whether through organic expansion or through acquisition, to show coverage and presence.

When I was a Director of a large German consulting firm, the Board hunted around the business for someone who would be able to help beef up the business. Someone who could quickly and efficiently, and hopefully profitably, expand to a new region of the globe, adding corporate mass to the organization. And in particular, as the business was a major partner of global software powerhouse, SAP, it needed to ensure that it could stand up to scrutiny when it applied to become one of SAP’s global implementation partners. But you couldn’t be global if you were only on two continents…follow this post at http://www.dw.de/beefing-up-business-in-malawi/a-17485766.

Like a King Cobra that swells it head up to make itself seem bigger before the attack, so too leading the business into a totally new region meant adding the geographic coverage required to make the company and its responsiveness more international. My responsibility for the expansion of the business to Latin America, provided the swelling of the neck on the European and North American body. So in a very short time, a little less than two years, we grew the regional business from zero to $25 million, which represented around 12 % of the global business turnover.

Now, given that the business was 50 years old, to add that much top-line revenue in such a short time was not only a huge corporate accomplishment (requiring group and individual talent, finance, the ability to sell, and many more skills) but also conveyed a powerful message to both clients and prospective investors alike: we can successfully expand our business to deliver quality service to any international client.

If you are international, we can be there as a business partner to support your business and to deliver value regardless of where you (or we) may be. That is a powerful message. And by successfully expanding to a totally new region, adding 250 staff and over a dozen regional office locations in the process, and making the business local, it allowed the company to present itself as truly international in its prospectus, regional in its make-up and local in its action, all at the same time. And it certainly was a contributing factor to the IPO on the German technology stock exchange, the Neuer Markt, being four time oversubscribed.

In the example above, the motivation for growing the business internationally was to prepare for an Initial Public Offering (IPO). There are other circumstances where geographic expansion makes significant sense: preparation for the creation of regional distribution or service centre hubs to streamline and improve product and customer service delivery and responsiveness; tapping into foreign markets with specialized skills, such as computer programmers who are able to generate more lines of code or architectural firms who need a cost-effective, volume based physical model production facility; or to quickly generate additional revenue by moving into fast-growing markets, thereby adding value to a business before a sale. And even simply to mark a physical presence in a region where the organization may not yet be present.

Beyond the immediate benefit of creating the additional mass, doing so often has a positive consequential effect. The first is that the business is that much closer to achieving critical mass in the local market. The ability to penetrate a local market successfully will mean that without question, local clients will be much more likely to consider the company a serious player and contender in the services or products that it provides. By eliminating the complexities and challenges of distance, currency, communication and even the lack of a local contact point, the establishment of a local presence will leap-frog any company ahead of its competitors who do not benefit from the same local advantage.

The second is that market perception will almost certainly be positively influenced, and that in turn will mean top-line growth, or additional sales revenue. Just as a snowball acquires bulk as it moves down a hill, so too growing a business will allow the company to be in a position to tackle bigger projects.

In doing so, confidence from the market of the business’s ability to deliver increasingly larger solutions, be they services or in quantity of product, will grow, which in turn will lead to better and bigger opportunities. So the bulking up of the business will become, in a sense, a self-fulfilling prophesy as the market’s observation of the organisation’s increased size will in part mean confidence being deposited in the organization to compete for more business.

Thirdly, in certain sectors, businesses will be able to compete whereas before they might have been excluded. Examples are the public sector, where a local presence is almost always mandatory, banking and retail, where local presence in practical terms is compulsory, or large multinational projects, such as construction or information technology implementation and roll-out, where a presence in multiple locations is considered fundamental to ensure that the supplier has both access to multiple sources of expertise, from different appropriate locations, and also has the ability, post-delivery, to offer relevant regional support.

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Finally, depending on whether the business decides to move quickly, via acquisition, versus organically, the option exists to very quickly increase the number of employees (and proportionally the business revenue) via the integration of an existing local business. While bringing some challenges in terms of the integration of a new culture and its people, it certainly brings with it, for the organization able to adapt to rapid and large changes, the benefit of a going concern that will face none of the challenges of a local start-up. The trade off will thus be between any capital invested (perhaps mitigated by some earn-out) versus the ability to generate immediate positive revenue and cash flow from a new region of operations.

So whatever the route taken to beefing up the business, size does matter when it is time to land that big international punch!

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