Offense vs. Defense: Growing Your Business

Tom Reilly of TomReillyTraining.com discusses the importance of customer retention, and how to balance focus between organic and inorganic growth.

Id 7878 Business Growth

This article first appeared in Industrial Distribution's 2015 July/August print issue. To view the full digital edition, click here.

“When you stop growing, you start dying.”  – William S. Burroughs

For most businesses, the relevant question is, “How should we grow our business” versus “Should we grow our business?” For the majority of businesses, growth is a given. Companies grow in one of two ways — organically and inorganically. Organic growth is the natural evolution and expansion of a business. This includes expanding the depth and breadth of products sold into a market. Inorganic growth happens when businesses buy market share by buying competitors. They expand their customer base by merger and acquisition. M&A activity now is at a 14-year high.

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To borrow a sports metaphor, the best defense is a great offense. Growth sounds like an offensive strategy, though it is really a defensive strategy. One study found that the average customer retention rate across industries is 81 percent per year. This means one-in-five customers leave every year. Another study found that the average business loses half of its customer base every five years. Businesses that fail to grow soon learn the painful lesson of watching competitors grow as they stagnate. It puts their business at risk. Growing attracts investors, employees, and customers. Everyone wants to join a winning team. Growth-oriented businesses leverage fixed costs more efficiently, which increases their financial viability.

So, how do you grow? We just completed a survey asking that question of 177 industrial and construction salespeople. This is what we discovered: 57 percent believe that growth from existing customers offers the greatest potential for new business, and 43 percent believe that the greatest potential for new business comes from finding new prospects. A prudent strategy for salespeople would include growth from customers and growth from prospects.

There is a wrong way and right way to leverage fully your existing base of customers. The wrong way is to ask, “How can I sell more stuff to my current customers?” This is too seller-focused. The right way is to ask, “How can we create more value for this customer?” This is customer-focused growth. Creating more value earns you the right to sell more stuff.

We asked salespeople to identify the best ways to approach new prospects. This is what we discovered. A referral from existing customers, friends, or peers ranked number one. Networking events and trade/professional groups ranked two and three respectively.

We then asked them to rate the most effective ways to initiate contact with new prospects. An in-person visit ranked number one, with phone calls and meeting at a social/business setting as numbers two and three. The best way to follow up on this contact was again an in-person visit, followed by phone and email contact. The greatest challenge in filling the pipeline was getting past the gatekeeper, followed by price resistance, and a lack of interest in the solution by the prospect.

Every salesforce needs a plan to leverage fully their existing customer base and a strategy for identifying and pursuing new prospects. Selling more to existing customers saves time and money. It takes less than half of the time to sell a new idea to an existing customer than to sell a new idea to a prospect. For existing customers who purchase commodity or consumable products, it is estimated that there is a potential growth opportunity of 10 percent. We discovered in our best-practices research of top-achieving salespeople that top-achievers spend 80 percent of their time working with existing customers. They recognize the value of leverage and prospecting. An equally important finding was that even the most successful salespeople still make one-in-five calls on prospects, seeking new sources of business.

Tom ReillyTwo findings from our research stand out. First, salespeople recognize the importance and urgency of prospecting for new business. They realize that they cannot rest on their laurels and hope what they have always had will always be there for them. Second, they validate the importance of face-to-face selling. For those who are uptight about the impact of technology on sales, relax. Professional selling remains a flesh-pressing endeavor. E-mail and phone are complementary, not supplementary tools for in-person selling.

There are three types of businesses. This first type plans for growth and positively engages change. They drive change and make things happen. The second type watches things happen. The third type wonders what happened. Your company can be the company that drives change. To do this, you need a growth plan that utilizes both growth dynamics — existing customers and prospects.

Tom Reilly is literally the guy who wrote the book on Value-Added Selling. You may visit him online at www.TomReillyTraining.com.

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