Grow Your Business 20% This Year.

Reprinted from SEMA News magazine, December 2004

by Jon Hedges

Commit your company to a goal to grow your business by at least 20% this year.

Here are the numbers you'll use to make it happen: 80, 20, 10, 3, and 1. And, just to keep it simple, let's put your growth plan on one piece of 8 ½ x 11 notebook paper. Growing by 20% in one year may be a daunting challenge to you. But by using these numbers and setting goals, it is possible.

Besides, this industry historically grows more than 5% per year on average, and you get that for free. There—you're already one-fourth of the way to your goal.

First, the 80

The “80” stands for 80%. First you have to identify the products and markets that generate 80% of your total sales dollars.

If you immediately suspected the “80/20” rule is in play, you're right. Discovered by 19th century sociologist/economist Vilfredo Pareto, “Pareto's Law” determined in 1897 that 20% of the people earn 80% of a society's income (SEMA News, May 2003). Amazingly, this ratio still shows up today in ways that Vilfredo couldn't have imagined.

Most likely, this famous ratio is alive and kicking in your business. Here's your challenge: identify the products that generate 80% of your sales dollars. If you're in more than one market segment or distribution channel, identify the segments that generate 80% of your sales dollars.

You can do this with an Excel spreadsheet, or if you're a manufacturer your MRP or ERP software may be able to generate a list of your “A” products.

These are the products and segments—and you may be surprised how few there are—that make the most significant impact to your business. They make the phone ring, they bring traffic to your web site, and they pay the bills.

On the other end of the scale are the products and segments that generate 20% of your sales—and I'll bet there are a lot of them. If your business is like many others, these products don't pull their own weight on the monthly P&L. Many of these products probably lose money for your business.

So here's your first order of business: focus on the 80%. Divert your resources to support these products and segments with marketing dollars, sales training, research & development and inventory.

On your piece of notebook paper, write these main products (or product families) and market segments at the top.

Next, the 20

Here, “20” refers to a New Product Ratio, or NPR, of 20%. New products are the key to growth in this industry, and you should have a goal to generate 20% of your sales from new products.

These are products that were first sold in the past rolling 12 months. If you're a manufacturer, use the first shipped date. If you're a retailer or wholesaler, use the first sold date.

Now, I admit there are plenty of exceptions to a 20% NPR. If you sell non-aftermarket products, or you're in the electronics side of the industry or in a very trendy segment, your NPR might lower or higher than 20%. Regardless, you should know what your NPR is and you should have a goal for 2005.

The reason this is a key number to growing your business is simple. If your NPR is very low, say around 5%, you're not keeping up with the rest of the industry, probably have too much dead inventory and you're not keeping your product line fresh and exciting. If your NPR is high, say 30% or more, you run the risk of overspending your marketing dollars to promote new products.

Some of you may be thinking, “Wait a minute, if 20% of my sales come from new products, won't the business grow 20% anyway?” Not so fast. Products get discontinued, trends change, customers come and go.

Set your NPR sales goal to 20% of your total sales and write the sales dollar goal and the percentage goal on your sheet of paper.

Give Me 10 Seconds

Here, “10” refers to the number of seconds you have to tell a total stranger exactly what your company does and why he should buy from you. Ready? Go.

This is surprisingly difficult for a lot of people. If you couldn't answer the question, you have a lot of company. Also, a lot of opportunity because this is where you can stand out from the rest of the pack.

Forcing an answer into 10 seconds requires clarity and focus. It isn't easy and may take some time.

Be careful on your definition, too. If it's too narrow, it might cut off future growth. And if your definition doesn't provide a benefit to the customer, it probably isn't on target yet.

Once you have this definition, it will provide clarity for a lot of things in your business.

Write your new 10 second definition on your sheet of paper. Use it to guide your R&D, advertising and sales efforts.

The Big Three

Write down three things that would make the most significant impact to the growth of your business. It could include launching a new product line, or it might include selling to a major new account you've been working on.

Focus your efforts on accomplishing these three things from the time you walk in the door in the morning to the time you go home. Put everything else on the back burner.

We're all distracted by hundreds of things every day, ranging in importance from the critical to the trivial. The temptation to change direction every few minutes is overwhelming.

Having the discipline to stay on track with your top three things will help give you the power to focus on the biggest opportunities to grow your business.

Write these three things down on your paper, with the goals you need to reach to make them happen.

The One Thing

The last number, “1,” is about that one thing your company or your products do better than your competitors.

In other words, just why should anyone buy from you, anyway?

You should have an immediate answer to the question, and if you don't its time for some soul-searching. If there isn't something that you do better than anyone else, you have at least two problems: There's no reason for a customer to buy from you, and there's a huge risk that a competitor who can do something better will come and steal business from you.

On your paper, write down the one thing that separates you from your competitors. This one thing should be a critical part of your marketing communications, and should be repeated—maybe “preached” is the right word—at every chance to your customers.

Conclusion

Now your paper should be filled and you have a rough outline of your 20% growth plan. Put it in a place where you'll see it every day, and stay focused on what you need to do to grow. Better yet, make sure everyone in the company sees it too.

Good luck, and let us know how it goes.