“Organic Growth-A value Creation Engine”
July 13, 2011 § Leave a comment
By George Daniels
Creating an effective organic revenue generator within a business entity adds greatly to the value of the business whether it is in the multiples/evaluations for an acquisition target or the contributor to earnings per share. This has never been truer than now where we are coming out of a deep recession. During the recession much effort has been put into “rightsizing” and improving operational efficiencies, but at the same time many of the products and services have aged within their individual life cycles which were already becoming shorter. Thus, there is a greater need to replenish the pipe line with new products and services or expand into new markets in order to organically grow and increase the value of the entity. This is particularly true with private equity firms where holding times have extended to five to ten years on numerous acquisitions.
Effective “Organic Growth Engines” are not the everyday staple in business today, but those that have them do exceptionally well. Just look at one of the premier players today, Apple. It was just a little over a decade ago that they languished with flat revenues and stock price. Today their “organic growth engine” (new products and new markets) has propelled them to revenues and a stock price which have increased more than tenfold!
For those entities wanting to create value this is a model and strategy worth considering.
It is the famous Peter Drucker who may have said it best:
“Because the purpose of business is to create a customer, the business enterprise has two—and only two—basic functions: marketing and innovation.”
“Marketing and innovation produce results; all the rest are costs…”
There are numerous CEO’s that turn around finanicially ailing entities, but it is the next steps in which CEO experience is in short supply.
Getting the house in order is tough, but it is more difficult to decide what you want to be (the new products and markets and customers) and then even harder to define and execute getting there. If it were easy all companies would be successful and have longevity.
After spending time studying “the successful” companies only to find many do not exist anymore, The Plexius Group studied hundreds of companies to find why they fail. In the failing companies the poor portfolio management and the related decisions and execution were primary reasons for failure. Also important were poor operations not just in their efficiency, but in their misalignment with the portfolio needs. It is not just about lean or six-sigma! It is critical that your resources, no matter how efficient, are aimed at the products and services that support today and will also define your future.
Self funded organic growth is the diamond in the rough for business success, value creation, and longevity.
The Plexius Group’s recommended approach begins with improving business effectiveness to generate cash. This enables and reduces the risks of the new product introduction and marketing which is the driver of the “Organic Growth Engine”.
We provide unique methods to improve your marketing and the release and management of innovation and then execution of the development process.
If your firm is looking to improve its “Organic Growth Engine” begin the dialogue by contacting email@example.com .