CHOOSING THE RIGHT GROWTH STRATEGY: When controlled and well-managed, growth can provide tremendous rewards. When poorly planned and uncontrolled, growth can lead to financial distress and failure.

In the article below, Andrew J. Sherman, Esq., presents a structure for balancing the need for growth with the need to understand that meaningful, profitable growth is a by-product of effective management and planning.

A recognized international authority on mergers and acquisitions and on the legal and strategic issues affecting middle-market companies, Mr. Sherman, a Partner in the Washington, DC office of Dickstein Shapiro Morin & Oshinsky LLP, also is co-founder of Grow Fast Grow Right Enterprises, LLC, a new firm offering seminars and educational materials focusing on business growth strategies for emerging growth and middle-market companies.

One of Fortune magazine’s Top 10 Minds, he has been an advisor to Fortune 500 and emerging growth companies in business planning, capital formation, franchising, and licensing, M&A, joint ventures, and strategic alliances. Mr. Sherman also is author of 14 books on the legal and strategic aspects of business growth, mergers and acquisitions, and capital formation

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Active FOCUS Deals

Although our firm has over 23 years experience across many verticals, FOCUS currently has active transaction engagements in the following specific business sectors:

• Business Services
• Call Center Software
• Construction (multiple assignments)
• Consulting
• Digital Printing Services
• Government Contracting (multiple assignments)
• Healthcare Business Services
• Information Management
• IT Outsourcing (multiple assignments)
• IT Services (multiple assignments)
• Leisure
• Library Services
• Media
• Medical Devices
• RFID Technology
• Security (multiple assignments)
• Software
• Transaction Management

Our transaction process provides us with up-to-the-minute market knowledge in these sectors that may be corporate development of interest to you.

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Choosing the Right Growth Strategy

By Andrew J. Sherman, Esq.

Business growth is truly a double-edged sword. When it is controlled and well-managed, it has the potential of providing tremendous rewards to the managers and shareholders of the company. When growth is poorly planned and uncontrolled, it often leads to financial distress and failure. What this means is that the need of the organization to grow must be tempered by the need to understand that meaningful, long-term, profitable growth is the by-product of effective management and planning. A failure to create this balance will result in vulnerability to attack by competitors, creditors, hostile employees, and creative takeover specialists.

Owners of fast-track growth businesses continue to worry about some of the same issues that plagued them at the turn of the 20th Century, such as OSHA health and safety standards, minimum wage standards, personal injury and workmen’s compensation claims, and product liability litigation. These issues may never be entirely resolved, but as our economy continues to evolve, new legal, financial and organizational issues have begun to emerge involving protecting intellectual property, doing business in the global village, transacting business via the Internet, and a renewed focus on satisfying (and keeping) customers.

Growth Challenges for Entrepreneurial Companies

These economic and organizational shifts are creating new legal challenges for entrepreneurial companies. Global competition and rapid technological advancements are creating new focus on business management models, such as a geographically dispersed work force, a flattened organizational structure, and strategic partnering among customers, vendors, suppliers, and even competitors. Companies of all sizes are developing work teams that communicate and collaborate electronically instead of around a conference table or by the water cooler. The virtual workplace -- in which there is significantly less human interaction -- brings new challenges in the areas of protection of privacy, confidentiality, and copyright laws.

Given these rapidly moving changes in our marketplace, the challenge for the entrepreneurial company is how and when to grow. This realization leads to other major questions that can be difficult to answer:

• What strategies should be used to facilitate growth?
• How do you know whether these strategies willbe effective for your company?
• Are there problems with your buiness structure that need resolving before you can implement the growth strategy selected?
• How can you build on your strengths and compensate for your weaknesses?
• How might the growth strategy selected present new risks or make you vulnerable and, if so, to whom?
• Is this the right time to grow? That is, have you put a proper foundation for growth in place?
• Is capital available to fuel growth?
• Are market conditions ripe for growth opportunities?

The challenges and problems associated with building a company beyond the start-up phase have certainly taken a toll on the many entrepreneurs who began new businesses over the past few years. The wide variety of changes inherent in business growth presents different management, legal, and financial challenges:

Growth means that new employees will be hired who will be looking to top management for leadership.

Growth means the company’s management will become increasingly decentralized, which may create greater levels of internal politics, protectionism, and dissension over the goals and projects the company should pursue.

Growth means that market share will expand, calling for new strategies for dealing with larger competitors.

Growth also means that additional capital will be required, creating new responsibilities to shareholders, investors and institutional lenders.

Thus, growth brings with it a variety of changes in the company’s structure, needs, and objectives.

Building a Foundation for Business Growth

There are very few challenges that are as exciting and as complicated as the task of growing a business. It is critical to first establish an understanding of the foundation that must be in place to allow a company to begin its growth path. What factors drive a company to fast-track business growth? What motivates an entrepreneurial growth company to get bigger, faster, diversify, enter new markets, and develop new products? Characteristics within the business or its management structure that contribute significantly to the perceived need to grow include, but are not limited to:

• Fear of competition,
• Boredom with current business plateaus,
• Perceived need for first mover advantage,
• Egocentricity, and
• Importance of momentum in many industries.

Under all of the key motivators for growth discussed above, a critical component is momentum. Leadership must ensure that the resources and the systems are in place to provide for forward progress towards stated objectives. Management must establish benchmarks and milestones and measure its progress against these goals.

A loss of momentum can be detrimental and also will stand in the way of the company’s ability to raise additional rounds of capital or get access to other resources that are need for continued business growth. The measuring of performance against these benchmarks, together with a leadership that is focused around maintaining high employee motivation and strong customer relationships will rarely lose momentum.

In the market, there often is a distinct lack of recognition regarding the steps needed to define and contain a growth strategy. For the senior executive, mapping out the steps needed to improve the chance for success is an intelligent and necessary activity that encourages focus from a bottoms-up perspective -- helping to ensure a solid foundation on which to build and execute the final growth strategy.

Often there is a lack of knowledge as to what growth strategies are available. This can lead to frustration and poor decision making. Among the growth strategies open to your company there is one that can fit your growth plan, as long as the proper due diligence has been accomplished to prepare the company for the next steps.

Intelligent Business Planning Is the Key to Successful Growth

Setting the Stage for Growth: Internal Factors

When growing a business, it is critical to first establish an understanding of the foundation that must be put in place to allow a company to begin its growth path. Before you can prepare your company for growth, you need to analyze its strengths and weaknesses. Looking for what’s working well serves to concentrate your efforts where you have the best chance of success. Looking for strengths enables you to also spot the weaknesses. Start with these internal areas:

• Costs and revenue. Examine every part of your business. Is revenue rising or falling? How about profit margin? Which divisions or departments stand out? Why? Do you enjoy a strong positive cash flow?
• Personnel. Do certain employees show exceptional skills or produce outstanding results? Where in the company is the strongest management, organization, and planning? Do you have the talent on staff to handle anticipated growth, or would you have to hire new personnel?
• Operations. Are the areas that seem to be trouble-free functioning with little supervision and always delivering results? How do the managers in these areas achieve such consistent results?
• Philosophy or mission. Do you have a written statement describing your company’s philosophy or mission? Does it define the essence of your business exactly so that you know which kinds of activities fit your company’s goals and which don’t? Are you diluting your resources by engaging in any activities outside your mission? Have you developed a set of core values, and have your employees embraced those values?

Setting the Stage for Growth: External Factors

Once you’ve sized up your business internally, take a long and careful look at the external factors that should reveal whether you are in a position to take advantage of current business trends and cycles. These include the following:

• Your market. Is your market share increasing or decreasing? Is your marketing strategy based on careful research or on instinct and hunches? Is your customer or client base shrinking?
• Your competition. Do you know exactly who your competitors are, and where they pose the largest threat? Which part of your business is most vulnerable to competition and which is least vulnerable? Are some parts of your market becoming crowded with competitors?
• Economic climate. Are changes in economic conditions -- interest rates, inflation, housing starts, industry earnings -- likely to affect your company? Do you make efforts to stay on top of things so that you can anticipate changes in the marketplace, or are you often surprised by developments that affect your company?

Your answers to these questions will give you an idea of where your company is strong and where it could improve as well as which type of growth strategy would be best. Consider the questions carefully and respond as if your company’s future growth depends upon your answering them thoughtfully -- because it does. These steps will help you and your company define your growth objectives, allowing you to keep these objectives in proper perspective and to monitor the success of your strategy.

Andrew J. Sherman, a Partner in the Washington, D.C. office of Dickstein Shapiro Morin & Oshinsky LLP, is co-founder of Grow Fast Grow Right Enterprises, LLC. A top-rated Adjunct Professor in MBA programs at University of Maryland and Georgetown University, Mr. Sherman is the author of 14 books including the best-selling and critically-acclaimed Raising Capital (Kiplinger, 2000), Mergers and Acquisitions from A to Z (AMACOM Books, 1998; a 2005 second edition is soon to be released), Franchising and Licensing: Two Ways to Build Your Business, (3rd edition, AMACOM Books, 2003), and Fast Track Growth Strategies (Kiplinger, 2002). He can be contacted at ShermanA@dsmo.com.

Grow Fast Grow Right (GFGR), launched in mid-2005, offers a wide range of seminars, educational materials, and related products and programs with a focus on business growth strategies for emerging growth and middle market companies. GFGR also provides consulting, training, and investment banking services (both directly and in alliance with strategic partners.) For more information, visit www.growfastgrowright.com, write to info@growfastgrowright.com, or call 1-866-GRO-RITE (866-476-7483).

FOCUS Expands, Adding a Partner and Senior Advisor in Atlanta; Senior Advisor in Washington

FOCUS Enterprises, Inc., an investment banking firm providing merger, acquisition, and corporate finance services to middle market companies is adding three new executives: a Partner, Jonathan E. Wilfong, and a Senior Advisor, Richard C. Cook, both of whom will be based in the firm’s growing Atlanta Office, and David Clarke, Senior Advisor, who will be based in Washington DC.

“Adding professionals of the caliber of Jonathan Wilfong, Richard Cook, and David Clarke definitely helps support the continuing success and growth of our firm,” says Marshall Graham, Chairman of FOCUS Enterprises. “Attracting such remarkable and varied talent to the FOCUS team substantially adds depth and expertise as we continue our expansion.”

About Jonathan E. Wilfong

Before joining FOCUS as a Partner in the Atlanta Office, Jonathan E. Wilfong was the Senior Managing Director of The March Group, LLC, a private investment banking firm headquartered in Nashville. At March, he completed a number of merger and acquisition engagements for middle market companies in the chemical, oil and gas supplies, equipment manufacturing, and healthcare industries. In the past 10 years Mr. Wilfong, a CPA, participated in over 85 successful transactions, both as an intermediary and a principal. In 1970, Mr. Wilfong joined Price Waterhouse, LLP and from 1983 through 1995 he served as a Partner with the firm...more

About Richard C. Cook

Prior to joining FOCUS as a Senior Advisor in the Atlanta Office, Richard Cook was Director, President, and Chief Executive Officer of MAPICS, Inc. (NASDAQ/NM: MAPX). He managed the 1993 sale by IBM (NYSE: IBM) of the $60 million revenue MAPICS business to Marcam; led the complex 1997 reverse spin-out from Marcam (NASDAQ/NM: MCAM); and conducted the public offering that created the $92 million revenue MAPICS, Inc. business. Prior to his tenure with MAPICS, Mr. Cook was an executive with the IBM Corporation with a career that spanned 25 years...more

About David Clarke

Prior to joining FOCUS as a Senior Advisor in the Washington DC Office, David Clarke was Chief Technology Officer for a leading non-profit organization. In addition, Mr. Clarke has over twenty years of management experience with IBM, W.L. Gore & Associates, and General Motors, focusing on information technology, pharmaceuticals, biotechnology, automotive, electronics, and consumer products. As a civilian advisor to the U. S. Department of Defense, he has consulted on communities of practice, collaboration, and the forward integration of information in Iraq and Afghanistan. He also is a published columnist on business and technology issues and has been featured in Fast Company, Computerworld, and CIO...more

FOCUS Web Watch: Twelve Value Drivers Support Success

In the PUBLICATIONS section of the FOCUS Website navigation bar, the first drop down leads to a unique tool developed by FOCUS. For buyers and sellers alike, the key to achieving successful M&A transactions is to identify the value components or Value Drivers of the transaction and then to make certain a plan is in place to integrate these components at the least cost.

Click on the twelve Value Drivers below for the complete article, “Twelve Value Drivers Help Ensure Success in Today’s Tough M&A Environment,” written by Marshall Graham, FOCUS Chairman.

Download a PDF of the 12 Value Drivers Scorecard

As a companion tool to “Twelve Value Drivers Help Ensure Success,” FOCUS also has developed a self-assessment scorecard to help you develop your own firm's profile...Download PDF.

About FOCUS Enterprises, Inc.

Headquartered in Washington DC, with offices in Atlanta, Chicago, and San Francisco, FOCUS provides a range of investment banking services tailored to the needs of middle market companies. FOCUS specializes in transactions for entities with $5 to $100 million in revenues, serving entrepreneurs, corporate owners, public companies, private companies or operating units, and various types of investors.

For 23 years, FOCUS has successfully integrated corporate development consulting and transactional expertise with its extensive research capability. The firm has long standing experience in completing mergers, acquisitions, divestitures, capital formation assignments, corporate development consulting projects, and financial advisory engagements.

Over twenty FOCUS Partners and Principals provide over two centuries of C-level operating experience in a variety of industries.

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