Now’s the Time – to Expand Market Share

Increasing consumer confidence, rising corporate profits and recovering capital markets can only mean one thing: The economy is rebounding, making it a great time to grow a business.

While consumer spending, which accounts for about 70 percent of the economy, is expected to increase 3.2 percent this year, corporate investment in equipment and software will expand almost four times as fast, up 12.1 percent, according to the National Association for Business Economics.

That’s a marked improvement from 2009, and as spending grows, some companies are taking aggressive measures to increase market share.

After two years of slashing costs and building on core competencies, 63 percent of senior finance executives at mid-sized companies surveyed for a March 2011 report from CFO Research Services and American Express say they’re focused on identifying new growth opportunities, including picking up market share.

Two-thirds of senior finance executives polled in the report, Winning Strategies in the Emerging Recovery, said their companies have become “somewhat” or “much” more focused on top-line growth since this time last year. By contrast, the number of companies controlling costs to maintain profitability shrunk to just 15 percent from over 50 percent two years ago.

As the economy rebounds, mid-sized companies are using a variety of methods to pick up market share, including analyzing and building on existing product lines, streamlining sales and marketing channels, investing in infrastructure and IT and identifying new customers.

Here’s how three mid-sized companies are taking very different paths to increase market share:

Strategy No. 1: Develop New Services or Enter New Markets
Company: Floor Coverings International (FCI), an Atlanta-based flooring products franchisor with about 90 locations in the United States and Canada and $35 million in annual revenue.

Strategy: CEO Tom Wood is no stranger to positioning a company for growth during an economic recovery. Before he sold FCI to The Franchise Company in 2004, his company went through a tough period that saw annual revenue contract by two thirds from a peak of $60 million in the mid-1990s.

After the sale, management at FCI and The Franchise Company conducted an internal strategic analysis to determine how to shore up the business. Based on the results, they decided to change the company’s system of having its design-consultant franchisees work from home offices selling directly to clients. With an infusion of capital and other resources from The Franchise Company, FCI helped franchisees open physical showrooms where customers could select carpet, hardwood or other flooring options.

The revamped FCI debuted in 2007, just as the first rumblings of the recession were being felt. “The housing market was first to go down,” Wood says. “It was a problem and an opportunity.”

Though the $80 billion flooring market shrunk 40 percent over the next two years, Wood says FCI continued to invest in strategies that increased sales.

FCI worked with suppliers and vendors to repackage merchandise. It also implemented strategies to attract new customers, including a grassroots marketing campaign to build relationships with real estate agents, restoration companies, remodeling specialists and others, all businesses that could recommend FCI to their clients.

Although business was flat, during 2008-09 FCI invested more than $700,000 to improve its online presence, including $300,000 for software that lets customers upload digital pictures to the company’s website to see how different flooring options would look in their homes. While other companies cut staff to improve profits, FCI not only avoided layoffs, but it paid for staff travel and training programs.

Results: When the economy started to improve, FCI’s investments paid off. During 2010, the company expanded into the Northwest, Boston, New York, New Jersey and Philadelphia, growing 17 percent while competitors posted only single digit growth, according to Wood. This year, management plans to invest nearly $1 million to open 20 more locations, which Wood projects will boost revenue another 25 percent. The company also is buying out competitors, which will add another 10 percent to 12 percent to its top-line growth.

Strategy No. 2: Build on Profitable Products, Customers
Company: A private equity-owned, Wisconsin-based stationery company with about $50 million in annual revenues.

Strategy: While the stationery company was profitable, management didn’t know which product lines were responsible for its success. Finance expert David Johnson of ACM Partners, a Chicago restructuring and turnaround specialist, was brought in to investigate. His assessment of the company’s five product lines, including greeting cards, calendars and stationery, revealed that two lines were great, two could be developed and one “was a dog,” he says.

Johnson advised the company, which he declined to name to protect its confidentiality, to shut down the underperforming line and invest in making the other four stronger.

His advice didn’t end there. Although revenue was growing and margins were great, the company was hurting itself by extending credit terms that were too generous, in some cases exceeding 240 days. In addition, the company relied heavily on calendar sales, which meant revenue was disproportionately weighted to the holiday shopping season. “The company was growing, but cash was getting tighter,” Johnson says.

As a remedy, Johnson recommended that the company analyze its customer base to weed out bad accounts and concentrate on good ones.

Results: Following Johnson’s recommendations, the stationery company plans to spend 2011 focusing on its most promising product lines and customers. It also is spending $250,000 investing in IT systems for inventory and accounting. Johnson predicts that those actions will generate about 5 percent growth, or about $2.5 million in new revenue.

Strategy No. 3: Use IT to Identify the Most Promising Leads
Company: Marketo, a San Francisco-based maker of software for sales organizations with more than 900 customers and annual revenue in the tens of millions.

Strategy: By using its own software, Marketo has become its own best advertisement. Most companies can’t manage all the sales leads they get, and chasing down new business is more expensive than selling to existing customers, so there’s an incentive to identify which leads to go after, says Paul Albright, Marketo’s chief revenue officer.

Marketo’s software scores sales prospects to identify the most promising. That helps, Albright says, because streamlining the time it takes to get from finding a prospect to closing a deal and starting to collect revenue can increase sales by 20 to 40 percent.

Identifying the best prospects has become even more important in the era of social networks. “Companies have to embrace the fact that people have strong brand preferences before they ever engage with a salesperson, thanks to the web and social media,” Albright says.

Results: Since its inception four years ago, Marketo has invested more than $10 million to develop its software. Albright expects Marketo will double its revenue in 2011 as the company goes after prospects in industries and geographic regions it hasn’t covered before.

According to the CFO Research Services report, finance executives expect opportunities to expand their businesses to become even more abundant over the next two years. With such optimism on the rise, it’s a good time to take a strategic approach to increase market share, says Johnson, of ACM Partners. “Too many mid-sized companies try to control costs by cutting things they aren’t comfortable with,” he says. “Make sure your organization is primed to grow instead of set to survive.”