In anticipation of a medium-term economic recovery, companies who have experienced a lackluster growth and thinking about how to position for the future are finding that capital is still relatively scarce for them, even though there seems to be a lot of money available.
The funding environment is not being responsive because general economic malaise, future market uncertainty and the need to recover from the sins of the past have made equity investors want to invest in a sure thing and debt investors more conservative. 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 criteria for investment has tightened. More creative strategies such as ESOPS have large fees associated with them. And liquidity from the public market is uncertain and costly.
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 describes several alternatives for driving revenue – the best alternative available for financing growth.
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 with advertisers more interested in digital placement. 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 tightly fits 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 who 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. For 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. Utilize college students for internships and use them part time during the year.
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.