Recently (last year) I engaged in a discussion with a client about their desire to sell to a large retail chain. We had a spirited debate and calculated the impact a year's worth of sales might have on their business. After some chalkboard math and rampant skewed assumptions, we determined that the company would grow revenue 300% year-over-year and carry a net operating profit forward on that line of sales of roughly 4%. The volume, no question, was impressive. The effort, and the qualifications to make it happen, were dramatically more intense than what the client envisioned. Fast forward 1 year and the client has abandoned the large retail chain. Why? It was simply too much for them to handle as a small company. The NOP they targeted at 4% was actually 1.5% and the volume they hoped for was 40% of projected. Overall, their business did grow revenue, however, it cost them plenty elsewhere. What happened?
The first thing the client admitted to was that they were not adequately staffed to support the sales. Staff were scrambling to accommodate additional work but were buried in regulatory requirements that they were unfamiliar with and had to learn, as well as left their existing duties on simmer with an occasional stir. Staff were overwhelmed, and a rapid hiring process delivered unqualified folks that did not represent the culture or values the company had built itself on.
Client saw existing business suffering a loss in sales, and inventory positions were damaged greatly. As this remarkable opportunity began to unfold, internally they began to implode. Sales teams were not meeting goals elsewhere as they had no product to ship, and the large volume retailer spawned a backlash from existing clients as they now had to compete on an even greater level of price slashes and inventory position. Overall, the company was struggling to maintain both business segments simultaneously. This also created a division, and resentment, by the sales staff working on legacy clients vs. those on the mass market side.
Cash was swallowed up by the demand for inventory by the retailer. All the investment dollars the company had squirreled away quickly evaporated into low margin sales and drove the business into an anemic cash mode. Payroll was difficult to meet, and A/P began to drag out, creating issues with vendors and damaging their otherwise stellar reputation.
So all of this sounds really crappy, right? What seemed so great turned into a gold plated turd overnight, and the company licked it's wounds for a few months before recovering enough to be able to regain the trust of their existing market. Yes, it did not turn out the way they hoped, however, it did have a silver lining. Within a few months of launching the ill-fated campaign the company received interest from a competitor in selling their market share to them. The competitor feared that this new mass market strategy would kill their business, and rather than fight it, they opened conversations on merging their business into the other for very agreeable terms. It also attracted an investment partner. This was great, but not the best part of the story. Through the process and difficulties uprising from this endeavor, they recommitted themselves to the principles that made them great in the first place. They circled back to innovation in market vs. revenue, and as a result doubled their head count and grew sales 4x. It a took a planned departure from their original strategy to solidify their focus, but they were better for it in the end.
The moral of the story is that if you want to swim in the ocean with the big fish, you better have a safe escape plan. Be prepared, know when to cut bait, and make sure to remember where you came from.
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