I recently attended an ACG event discussing senior executives view on future growth in their businesses and where it will come from. One of the comments from a President of a small-sized specialized equipment manufacturer stuck with me. He commented that over past couple of years, he asked himself and his team, “Are you a hunter or a farmer?” He expects this to be one the pillars going forward as well. What does it mean?
When times are good and things are good across the broad, for companies it’s easy to be a farmer and grow. Current customers keep coming back and it’s relatively not that hard to acquire new ones. During these times, more often than not, some of the key metrics – e.g. what’s the profitability / customer?, how’s the market segmented?, or how should the resources be allocated for maximum returns?, are seldom discussed. Everyone is happy and riding the tide. It’s when things turn, that a deep introspection is done. For this particular company, that meant saying no to much larger OEMs, because of several reasons, including, profitability at those accounts, ease of doing business. Remember, this is a company with revenue in tens of millions of dollars, turning customers 100x its size away. The result – lower revenue, but expanded margins, higher employee morale, and efficient allocation of resources to hunt for future growth opportunities.
This company is not an exception, in fact, many companies are in the game of hunting to grow via different strategies. Some of them include –
· Becoming aggressive along the value chain: Dow Chemicals is one of the examples in this case, wherein Dow is evolving from being a pure materials play to applications / end-products supplier. The company is vying to become a supplier of lithium-ion batteries with its Dow Kokam Venture . Also, it has a dedicated commitment to become a leading supplier of building integrated photovoltaic (BIPV). Just couple of examples, but you see the trend.
· Reaching out to external partners: Case in point, GE, and its commitment to be a leader in smart-grid, solar, wind, and related clean-tech sectors. In addition to internal resource commitment, GE announced partnership with four leading VCs to establish a $200 MM fund to fund entrepreneurs / early stage companies in the area smart-gird first and now to improve efficiency in our homes .
· Adopting an aggressive M&A strategy: A recent McKinsey report stated that M&A activity in 2010 reached $2.7T and 7,000+ deals globally, a level seen before the current economic crisis. More importantly, the value added in these deals is significantly higher than what was seen in the recent past, across all deal sizes. One of the examples is ABB , which has invested in early stage companies (via its recently created Ventures group) to acquiring companies for $4B+, and in between.
One can expect these to be in addition to current on-going efforts – e.g. R&D, business strategy, customer segmentation etc. Though these are three broad themes, similar ‘hunting’ dynamics is expected in other areas as well – from the evolving investing strategy at a VC fund to a technology start-up aspiring to grow.
An answer to whether you are a hunter or a farmer could help you focus and better position your company for growth in the future.
