Member Paul White Speaks: Instead of Diving In, Consider Zooming Out
The case at hand was brought by a CEO who was experiencing multiple challenges in growing the business. Lack of skilled labor, territory-limiting distribution rights and projected declines in local market demand were all in play. He was looking for strategies to overcome obstacles and drive strong growth in the coming years.
If you were in this situation, what would you do?
If I were in your shoes, I’d take a second look at the recurring revenue piece of your business. Though it is not a large portion of your current income, it may be the key to the majority of future value.
The growth-limiting factors you mentioned are surely daunting. Oftentimes, I find these immense challenges are overcome, not by bulldogging with brute force, but by taking an altogether different tack. Rivers flow around obstacles, not through them. If I were in your position, I’d step back and mull over how to allocate resources differently to get the biggest bang for my buck over the next five years. My goal would be to maximize the potential for growth in the value of the whole business, rather than focus on growing the current major revenue streams, which of course, are the ones facing strong headwinds.
Services that produce recurring revenue, like those you identified in your own book of business, would be of special interest to me. Due to the low investment needed in skilled labor, the freedom from geographic licensing constraints and the repeat nature of this business, recurring revenue is a very efficient growth vehicle. My back-of-the-napkin calculations suggest that a focus on growing recurring, rather than project-based, revenue over the next five years, would provide a much higher return on investment. Every dollar of revenue generated would produce more current income, and would increase the value of the business far more rapidly. In fact, my quick calculations suggest that the value of this small, recurring revenue piece of your business could exceed the value of your core business within the next five years.