Growth comes in many different shapes and sizes and can be accomplished several ways: through mergers and acquisitions, by enhancing existing products and services or innovating new ones, or by extending market share.
The key is paying attention to the three main drivers of growth — customer satisfaction, good products and services, and pricing. Doing so can help your business overcome hurdles and be successful, but ignoring them can lead to problems down the road.
“Bottom line, you’re not going to grow fast or profitably if you don’t pay attention to these drivers,” says Jim Lane, director of GBQ Redbank Advisors.
Smart Business spoke with Lane about how to use these drivers to increase growth.
How can you overcome some of the challenges of not growing automatically?
The first problem is disaffected customers. Customers are under a lot of pressure to reduce their costs. Plus, they’re scrambling against competitors to grow, so they take it out on vendors. They ask for deeper discounts, tend to be grouchier about problems and try to force solutions. This is all costly and, eventually, if not handled properly, results in defection of customers.
Products and services that are not well thought out or appreciated by the market will be a big drain on profits. If you can’t sell what you have to the first customer, selling to the second won’t be any easier. It’s a big warning sign if you need to educate the market on your product just so they can understand it. You’ll end up spending a lot of resources to get your idea across. You have to listen to what the market is saying.
Pricing below cost is also a barrier. It may grow revenue in the short-term, but it ends up weakening your financials because you’re mortgaging all assets and converting them into costs that you’re selling. Instead of getting stronger with each sale when you sell profitably, you’re getting weaker. Eventually you will not be able to invest when shocks come along. If you sell profitably, you have reserves on hand to handle these shocks and are not forced to discard a lot of human resources that you have invested in.
How can you use customer service to drive growth?
There’s some research done by the Association for Customer Service at the University of Michigan. It produced the American Customer Service Index, which surveyed 65,000 people in 200 companies across 40 industries and ranked them according to customer satisfaction levels. It sorted these 200 companies, which are a sample out of the Standard & Poor’s 500, into strong firms from a customer satisfaction perspective. If you create an investment portfolio out of these winning firms, and compare them to the average performance of S&P 500 companies, you’ll find that they grow their market share value over three times as much as the S&P 500 does. That’s compelling information. It seems obvious, but making your customers happy really has an impact on your growth and revenue. That’s a huge driver of profitable growth.