Innovation is Overrated: What Really Separates Growing Companies From Those Who Stay Stagnant
This article first appeared in the 2013 Industrial Distribution January/February issue. You can view it here.
Years ago, a company sold a medicated balm for arthritis via traditional advertising in the back of health magazines. While profitable, revenues had been stagnant for some time.
The owners decided they had two options: (1) Design a new product that the market wanted more, or (2) Sell the company.
They chose option two and got their money from a product they considered to be a dud.
Within 18 months the new owners – using a third option the original owners didn’t see – took this medicated balm from under $100,000 a year to just over $13 million. It was then sold for eight figures to a pharmaceutical company.
This medicated balm went by the name Icy Hot®. Maybe you’ve heard of it?
How You Can Replicate What the Owners of Icy Hot Did
I’m going to share with you what the owners of Icy Hot did to grow it so dramatically. But before I do, let me ask you a quick question. How you answer it will tell me a lot about the direction your company is headed:
If I told you that you had to grow your company by 30 percent this year, how would you do it?
Nine out of ten executives or business owners automatically respond with one of the most popular buzzwords today: innovation. Like the original owners of Icy Hot, they think they have to invent a new process, product, or something similar to get those kinds of returns.
The good news: getting a 30 percent jump is not only possible, but you can do it with much less risk if you focus first on optimization. That’s what the owners did in the story I shared above. They continued to advertise like the original owners – but they optimized and improved upon that process.
First of all, it’s a physical law. It takes a lot less energy to keep an object moving than it does to initially get it started moving. In business-speak: innovation is an expensive, time consuming, hit-or-miss proposition that requires proportionally more of your company’s resources.
Optimization, on the other hand, is taking the processes you already have in place, but finding ways and means to do them better, more efficiently, and more profitably. In some cases, a LOT more profitably.
The problem with optimization – no matter how many real-life stories I share – is that business owners don’t think optimization can get the job done. So, let’s do a little math.
Little Hinges Swing Big Doors
If you brought me in to help grow your business, the first thing I would do is take you through Curtis Alexander 101 and start looking at the big three drivers in your business. In short, there are only three ways to grow a business:
1. Get more clients
2. Get those clients to spend more each time
3. Get those clients to spend more often
Now, as a hypothetical example and to keep the math simple, let’s say you have a ten million dollar business:
10,000 clients x $500 per purchase x 2 purchase per year = $10,000,000 per year
Now let’s look at what happens if we can conservatively bump each of your drivers by 10% this year:
11,000 clients x $550 per purchase x 2.2 purchases per year = $13,310,000 per year
By optimizing each of your three drivers by a mere 10% each, it has resulted in an overall increase of 33.1 percent. That’s the power of small, incremental optimization. And again, I’ve used conservative numbers to try to illustrate my point.
Now, I’ve shared this with enough folks in the past to know what is going through your mind right now: “Curtis, your math makes sense, but how in the heck do you think we are going to be able to find a way to grow 10 percent in each of these areas?”
The good news is you don’t need (or want) just one way.
Or, put another way: I don’t know one way to grow a business 100 percent in a year. But I do know 100 ways to grow a business by 1 percent each. Add those up and you have a big improvement. The trick is to take your blinders off. This is one of the areas where it helps to have an outside set of eyes look at your business. Once you do that, then you need to take massive action.
What Can You Optimize In Your Business?
Take a quick snapshot of your business. How are you getting your clients right now? Is it advertising?
If so, I’ve seen headline changes boost response rates by two, three, even ten times current rates. I’ve seen follow-up messages (most businesses are terrible at lead follow up) bump rates by 25 percent or more. How many media outlets are you currently advertising in? It always surprises me that if a company has an ad that works in one media, they aren’t running it in every media where their potential clients congregate.
How about purchase price? As simple as it sounds, sometimes you just need to test prices without doing anything extra at all. Sometimes simply charging more actually increases purchase rates. Or, can you bundle other ancillary products and services onto your current offering? You could even extend this idea to non-competing products at other companies in your niche.
Again, there are literally hundreds of ways to “skin this cat,” And it makes your mental and physical task of growing your company immensely easier when you realize that you don’t have to invent anything new.
Curtis M. Alexander is a Business Growth Strategist who helps industrial and manufacturing companies uncover hidden assets, increase revenues, and lower marketing costs. To learn more ways to grow your company, request your free copy of Curtis’ newest Executive Briefing: “7 Tested Strategies to Increase Profits and Lower Marketing Costs for Industrial Websites” at www.curtismalexander.com.