Terry Crabbe, Sound Hounds
What do all the companies in this list have in common? Each of these companies reported profits last year at least twice as large as their profits the year before-in some cases as much as five or ten times larger. A few of them also doubled their revenues last year.
What distinguishes these companies from one another? Just about everything else. They come from all parts of the U.S.A., a complete mix of manufacturing and service businesses, hi-tech and low tech, old and young, very large ($20 billion) to very small ($1.1 million).
We could probably fill a whole book with the names of companies that doubled their profits or revenues last year. Would the name of your company be on our list? If not, why not? If yes, will it be on next year's Double It list too? That is the subject of this book.
Howard K. Cooper. President and CEO of Trimedyne, a Los Angeles based hi-tech medical equipment manufacturer, is obsessed with these questions. His company more than doubled last year. Revenues grew from $12 million in 1987 to $31 million in 1988, while pretax profits increased from $500,000 to $6.5 million. For him, the challenge has been: "How to introduce my people to the concept of 2X, meaning twice again next year. Some guys would be happy to do $12 million again. But we (top management) won't be and neither will the shareholders." What about you?
The whole thing is not really about numbers. Doubling is only a figure of speech. The real issue is about being the very best possible, achieving the maximum possible for your business. For some, doing the maximum possible may be tripling revenues in one year like Palma Tool & Die in Buffalo, which went from $400,000 to $1.2 million in 1987, or tripling profits in one year like Eastman Kodak, whose earnings soared from $374 million to $1.2 billion in 1987. Or more.
Over the last few years we have observed young companies emerging from obscurity to take old established industries by storm, like P.A.M. Transport, a trucking company started in 1980 with 5 trucks and 15 trailers and now one of the ten largest irregular truckers in the country with over 700 trucks and 1,500 trailers. We have also seen established companies suddenly awaken from slumber and soar into prominence like Patten Corporation, a real estate company founded in 1965, whose revenues grew to $4.3 million over its first fifteen years and then rocketed between 1984 and 1988 to $116 million with profits of $15 million. Along with everyone else we have watched mega-corporations amble on for years with flat sales or slow steady growth and then surge forward dramatically like Ford Motors, which lost billions of dollars in the early 1980s then bounced back to raise revenues by 80% and more than double net income between 1985 and 1988.
Numbers do not tell the whole story. They are only an indicator, an expression of something going on deeper within these companies. Doubling is as much a question of quality as of quantity. This book is about raising the quality of corporate performance from that of an average or above-average performer to become the very best. The question, as Trimedyne's Cooper put it, is "Even in the professional ranks, what makes the difference between just an ordinary player, a professional player and the champion?" We may measure that difference quantitatively in terms of seconds clocked, yards run, points scored, or games won. But being a champion is essentially a question of quality.
THE MYSTIQUE OF RAPID GROWTH
Over the last few years we have studied and surveyed more than 1,000 companies around the world from North America to South India and back-companies ranging in size from a few hundred thousand dollars to tens of billions, companies in a wide spectrum of businesses from basic manufacturing-the tools, dies and molds used to make just about everything else-to ice cream, toothpaste, stereos and integrated circuits, from down-to-earth, traditional services like selling land, remodelling homes, transporting cargo and repairing shoes to sophisticated, high-tech businesses in the finance and information industries.
These companies differ widely in age, size, origin, geography and culture. They also share a lot in common with each other and with other companies in terms of the way they were founded, the types of experiences they have had, and the challenges and problems they have confronted. But the most significant common denominator which links them all together is that they have grown rapidly and profitably; and even more importantly, they have managed to maintain high rates of profitable growth over a considerable period of time.
Growth is a refreshing and invigorating experience, and there is something particularly exciting and exhilarating about rapid corporate growth. Growth is both a natural and universal phenomenon common to all living things. Therefore it is doubly strange that corporate growth should be the subject of so many superstitions and misconceptions. Few issues are so frequently discussed these days and yet so steeped in mystery as the phenomenon of rapid corporate growth.
When we talk of rapid growth, companies like Apple Computers, Federal Express, The Limited, Circuit City may come to mind. But there are many others-thousands of companies of all sizes and descriptions and in every conceivable type of business that are experiencing rapid growth at this very moment. In fact there is nothing very uncommon about rapid growth at all, except perhaps that we think there is. And that is a very important "perhaps", because it often prevents companies from growing as fast and as far as they can. The myths and superstitions surrounding corporate growth would not be so important, if they did not have such a profound impact on the performance of most companies.
How would you react if someone walked into your company and said that you can double your revenues or profits within 24 months? Skeptical? Suspicious? Amused? Probably not unlike Ray Kennedy, CEO of Kennedy & Bowden Machine Co. in Nashville, TN who commented: "The first time I heard the idea, I thought it was pure hype!" In the last one year, Kennedy's profits have increased by more than 50%. His initial reaction only illustrates how unusual rapid growth seems, despite the fact that it is happening all the time, all around us and, not uncommonly, to us as well-for virtually every company has grown rapidly at one time or another.
Then why all the mystery? The mystique of rapid growth is reinforced by a host of myths and superstitions that prompt us to admire rather than imitate the accomplishments of other companies and to dream of greater success rather than striving to achieve it. This corporate lore is supported by a vast array of common sense, conventional wisdom and objective fact. But that does not make it inevitably true or compelling. The real issue is not whether it is ever true, but whether it need be true for your company.
In order to quantify the potentials which we believe exist for every company, we speak in terms of doubling revenues or profits within a year or two. Such a goal may seem unrealistic to some and modest to others. But in either case, the real challenge we propose is to go beyond the ordinary and unexceptional to attain the highest possible and achievable. Our experience has convinced us that the highest possible is almost always far more than what even the most dynamic and ambitious companies attempt to achieve.
This is so because, while a great many companies experience rapid growth, very few really understand how to consciously tap and systematically utilize the sources of energy that drive and propel it. But before coming to that, the first necessity is to dispel the myths that conceal the underlying process.
THE FIVE MYTHS
Myth #1: There are inherent limits to how fast companies can grow: Of course there are limits. The question is: How fast is fast? When "reasonable" companies plan for rapid growth, they think in terms of 15%, 20% or at best 30%. But much higher rates of growth are being achieved by many companies. According to INC. Magazine, the 100 fastest growing public U.S. companies in 1987 grew at a compound annual rate ranging from 93% to 579% between 1982 and 1986. The 612 companies which have appeared on the INC. 100 since 1979 have grown at an average compound rate of 90%, doubling in size on average every 56 weeks.
Such high rates of growth are certainly impressive, but they immediately raise two other dominant myths about rapid growth: growth of this magnitude can only be achieved from a very small base and in newly emerging industries.
Myth #2: Opportunities for rapid growth exist only in new, non-traditional or high-tech industries, which are not yet dominated by giants: If Fred Smith had believed this generalization, he never would have started Federal Express and entered the parcel delivery business, which had been dominated by the Postal Service and UPS for nearly a century.
It is true that many fast growing companies come from high-tech industries. But this generalization conceals the fact that a great many others do not-companies like Century 21 (real estate), Kinder Care (day care), Liz Claiborne (garments) and Nike (shoes). In fact the top three companies on INC.'s 1988 list are specialty discounters-Entertainment Marketing, Home Shopping Network and Warehouse Club. INC.'s top ten for 1988 also included Care Plus (home health-care services), Sahlen & Associates (security services) and Vipont Pharmaceuticals (oral hygiene products).
There is nothing very high-tech or non-traditional about vinyl siding. AMRE, Inc. began doing custom home installation of external siding in 1980. In 1983 the company had revenues of $4.4 million. By 1986 it had grown nine-fold to $40 million. Sales doubled in 1987 to $78 million and nearly doubled again to $140 million last year.
The Biggest Firm in Town: Other very fast growing companies can be found in unlikely industries and unusual places too. Tontitown, Arkansas is not exactly a thriving metropolis, but being the largest company in this small town is none-the-less a considerable distinction-even if the town has a population of less than 700. In 1980 Paul Maestri founded P.A.M. Transport in his home town under a large oak tree with $3,000 in capital. The company has doubled in size every year since it was established. Today P.A.M. is a $75.8 million company.
Myth #3: The bigger you are, the slower you grow: True enough, most of the companies on the INC. list were under $10 million in size when they went public. But a number have already crossed the $100 million or the $500 million mark and are still going places-companies like Liz Claiborne, whose sales rose from $117 million to $1 billion between 1982 and 1987 (a five-year growth rate of 47% compared to the industry's 8%) while profits increased from $10 million to $114 million.
Still one could argue that a few hundred million dollars is relatively small. What about the big guys? In 1970 IBM had revenues of $7.2 billion. Over the past 17 years, it has grown another eight-fold to $54 billion. The revenues of Federal Express nearly doubled between 1984 and 1986 growing from $1.4 billion to $2.6 billion. In the last two years revenues have risen another 80% to over $4 billion. Of course, Federal Express knows that it cannot keep growing at that rate indefinitely. That is why it has set only a modest growth target for the rest of the century-to become the largest transportation company in the world! Companies like Federal Express and IBM are exceptional, but hardly unique. Other major corporations like Apple, Coca-Cola and Marriott also have targets to at least double in size over the next few years. What about your company?
But after all, anyone can increase revenues simply by lowering prices and cutting profits-which brings us to the fourth myth.
Myth #4: The larger you grow, the smaller your margin of profit: Let us concede from the beginning that this is certainly most often the case. The question is whether the fact is the result of the myth or vice verse? Bajaj Auto Ltd. has dominated the Indian motor scooter industry for nearly 30 years. The company grew from $1 million in 1961 to $36 million in 1976. Over the next decade sales grew another ten-fold and pretax profits rose nine-fold. In 1986 sales rose 60% to $420 million and operating profit increased a staggering 72% to $100 million. But by this time the Indian market had begun to really heat up with the entry of more than 30 new competitors including the world's largest players-Honda (world #1), Suzuki and Piaggio (Vespa). In 1987 Bajaj's revenues crossed $500 million, after tax profits doubled, and the company now ranks second in the world in its industry with plans to double production again by 1992.
Sterling Chemicals of Houston is a company that shatters all the myths. This fledgling three year old created from Monsanto's petrochemical manufacturing facilities recorded sales of $699 million in 1988 with profits of $213 million and a return on equity of 235%!
Myth #5: Rapid growth cannot last: We come finally to the most devastating of the myths about rapid growth, most devastating because it is most often true. Almost every company grows rapidly at some points in its existence, but in most cases spurts of rapid growth tend to be just that, short-lived bursts followed by leveling off and in some cases decline or extinction. Rapid growth is not only very common. It is usually very fleeting too. Rapid growth is not only exhilarating. It is also extremely demanding and sometimes fatal. Some companies actually grow themselves right out of existence.
We can, of course, quote exceptions to this rule like Apple Computer, whose sales climbed from $1 million in 1977 to $335 million in 1982, then rose to $2.67 billion in 1987, while profits multiplied 5.5 times to $218 million. In 1988 sales grew another 54% to $4.1 billion and profits nearly doubled again to $400 million. But the fact remains that rapid growth is for the most part a transient phenomena. Nearly 40% of the companies that appeared on INC.'s 1987 list did not return in 1988. In a survey of 770 U.S. corporations which we conducted in collaboration with American Management Association, periods of rapid growth lasted an average of 29 months.1
Yet still we refer to this frequently documented occurrence as a myth, not only because it is not always true, but also because it need not be true for any company that fully understands the process of growth and anticipates its demands.
The Greatest Myth of All: These five generalizations obviously cannot serve as guidelines for a company that wants to grow and keep growing rapidly and profitably. Shattering their hold on us is the first step toward rapid growth. Even when we give up one myth, we frequently adopt another in its place. Very often even when we say and genuinely believe we are free from them, they guide our every action-the plans we make, the type and number of people we recruit, the size of the computer we buy.
How much do you plan to increase sales or profits next month? Next quarter? Next year? Are you hiring people who can help take the company to a far higher level and continue to grow with it? Are you equipping them with all the skills they will need to manage that growth? Are you putting in systems capable of handling a much greater volume of work in future? Or do you say: "Let the growth happen and then I will do all these things."
What we should part with is The Myth of Limits. The only really binding limitations on our growth are the constraints placed on us by our limited perception of what is possible and our limited aspiration to achieve it. Terry Crabbe, founder of Sound Hounds in Victoria. B.C. put it succinctly: "I set the limits on my growth!" Or as Lee Southard, President of Vipont Research, expressed it; "You can be whatever you resolve to be. Everything is possible!"
Our study of rapidly growing companies has led us to three fundamental conclusions:
Our first conclusion is that rapid, sustained and profitable growth is possible for any company that really wants it and is willing for the effort. The emphasis is on wants and willing.
But doesn't everyone want to grow rapidly and profitably and keep on growing? Not by a long shot! Sure, almost all companies will welcome growth if it comes their way. But that is not enough. Few companies really, genuinely believe that rapid and continuous growth is possible for them, and even fewer are willing for the effort needed to achieve and sustain it.
So everything comes down to the questions: Do I really believe that rapid growth is possible? Do I really want it? This book is intended to help the reader answer the first of these questions in the affirmative.
But the second question-Do I really want it?-we each must answer for ourselves. Actually the two questions are much more closely interlinked than may at first seem evident. For very often our lack of understanding or appreciation of a possibility is actually an expression of a lack of aspiration or an unwillingness to take the effort needed to achieve it. To put it plainly, when we say we do not understand or do not believe, we really mean we do not care or are not willing to try.
Many companies today cannot really afford the luxury of choosing between rapid and more moderate rates of growth. Our society is changing so rapidly that companies which do not seek to perform at their maximum, may not even survive-as Chrysler almost did not survive. Dave Norman, co-founder of Businessland, put it bluntly: "If you don't grow, you'll die."
Our second conclusion is that rapid growth in revenues and profits is the result of a process, a process that can be learned. Many entrepreneurs may be born with innate talents for enterprise, but the knowledge and skills needed to grow and keep growing a company can be acquired by anyone.
In the remaining chapters of this book, we attempt to describe that process and to illustrate how it works in companies of all sizes drawn from a wide range of industries. This process is not something we have invented. It is the natural process by which all companies grow, but usually that process is unconscious. How many companies really understand what has propelled their growth up to the present? How many ever even ask the question? In our experience very few, even among the most successful.
Usually growth occurs unconsciously in response to the pressure of external forces or as the result of favorable circumstances, such as an expansive market or a new technology. Companies respond to these conditions by releasing their energies and tapping inner potentials which have been there all the time unutilized or underutilized beneath the surface, just as psychologists say that the average man utilizes less than 10% of his mental capacities during normal life. This need not be true either for the individual or the company. If we become fully conscious of the process by which we have grown up to the present, we acquire the ability to stimulate and accelerate that process in the future.
Every company has already doubled in quality and quantity many times. What most of us understand as the result of luck or hard work is an expression of a process we do not perceive. Normally we think doubling is possible only if luck is on our side-if the market suddenly takes off or if we discover a great new product or if someone offers to double the investment in our company. Doubling is possible without waiting for such fortuitous circumstances to occur by fully utilizing the potentials which lie within every company.
Our third conclusion is that the process of growth is fundamentally the same for the individual, the company, and the nation. In fact the three are inextricably intertwined, i.e. personal growth, corporate growth and national growth go together.
Companies which strive for the maximum personal growth of their people tend to grow the fastest and the farthest. So too, individuals who strive to fully release their personal energies and fully utilize their capacities for the growth of the companies they work for tend to grow the most as well, both in terms of career advancement and development of personality.
The same is true of the nation. The New York Times recently published an editorial entitled "Two Trillion Dollars Is Missing", in which it mourned the declining rate of growth in industrial productivity and concluded:
"By world standards, the American economy remains a continuing success. By the standards of what America might achieve if its creative energies were fully utilized, it is only stumbling along. No one knows how to excite and harness those energies. But the stakes, from maintaining national security to rescuing poor children, are immense. The rejuvenation of the incredible productivity machine stands as the highest priority of America's new political era."2
Obviously we must first understand how to fully release and harness our own creative energies and those of the people we work with and the companies that constitute this great national economy. In the last two hundred years the quantity and the quality of American life have doubled many times-in terms of productivity, national wealth, educational attainments, scientific knowledge, technological development, etc. How far have we as a nation really understood the secrets of our own success, the source of the enormous creative energies that have propelled our growth and the process by which we have released and harnessed those energies to double our achievements time and again?
In the world of today, the time required for doubling is shorter than ever before-as the rapid emergence to power of countries on the Pacific Rim makes abundantly clear. Yet as the Times article reminds us, our own rate of growth is declining, while that of others around us continues to accelerate. Between 1948 and 1965, output per hour in the U.S. rose 3% per year. Had it continued to grow at the 1965 rate, our gross national product today would be $2 trillion higher than it actually is and per capita income would be 40% higher than it is now. That additional national income would generate enough tax revenues to completely eradicate the federal budget deficit.
Is that decline inevitable? Certainly not. Like today's developing countries, our rapid growth in the past was fueled by tremendous gains in productivity based on the spread of education and the application of advanced technologies. Have we exhausted or even begun to exhaust the potentials of these two engines of growth? All recent studies of our educational system state emphatically that a doubling of the quality and quantity of our educational attainments is not only possible but essential for the future strength of the nation.
The same is true of technology. The American farmer is regarded as among the most advanced in the world. Yet according to agriculture scientists, only 50% of the proven technological discoveries made in our nation's laboratories are utilized to enhance commercial production on our farms. How much more potential lies unutilized for applying advanced industrial technology in the hundreds of thousands of factories across the country?
Nor are education and technology our only underutilized resources. There is a technology of organization, what is commonly call management, that we are only just beginning to understand and have hardly begun to utilize, a resource which can contribute as much to national productivity in the century that is soon to begin as scientific technology has in the one that is coming to a close.
The challenge to Double It is not intended just for companies. It is addressed to every individual reader and to the nation as well-to raise performance and productivity to the maximum level we are capable of-to double the prosperity and quality of life in America. If a continuation of past growth rates in productivity would be sufficient to eradicate the federal deficit, one of our most pressing national problems, how much more prosperous could our nation be, if we try to improve upon our past performance rather than merely trying to match it?
The idea of doubling America is not mere speculation. It is already happening. In 1988 alone American exports rose by 26%, the trade deficit declined by 21% and the profits of the nation's 500 largest industrial corporations rose by $115 billion or 27%-at which rate they would double in three years! What then can we not achieve by a concerted effort to fully utilize all our resources and fully tap all our potentials?
PROFIT PLANNING FOR PRACTICING MANAGERS
This book has been designed to assist practicing managers to apply the ideas it contains directly to their companies/divisions/departments to accelerate the growth of their businesses and dramatically increase profitability. If you complete all the exercises suggested in the book, you will have created a detailed plan to achieve maximum growth and profits for your company.
As you read through the concepts and examples in this book, practical, useful ideas may occur to you for application in your company. We encourage you to pause in your reading to note down ideas and decisions you take for the improvement of your business. Appendix A contains a model for an Action Plan form and instructions for how to use it to record your decisions. The use of the action plans will help you to directly translate the concepts and examples into practice.
The key for applying the ideas in this book to your business is the Profit Plan. A model form for the profit plan is given in Appendix B. The profit plan will help you assess the actual impact on your company's revenues and profits of the decisions you take and the action plans your develop. Subsequent chapters of the book contain specific exercises to aid you in evaluating the relative strengths and weaknesses of your company and in identifying practical strategies appropriate to improve its performance. At the end of most chapters, you are asked to write action plans to apply the ideas in the chapter and to assess the impact of your plans on revenues and profits.
Chapter Fifteen contains detailed instructions for reviewing the decisions and action plans you have developed and for completing the profit plan.
The first and most important thing you should do to apply the ideas in this book for the improvement of your business is to choose a goal. The effectiveness of the strategies described in the book depends on the clarity of your goal and the intensity of your commitment to it.
Define your goal in terms of the dollar growth in revenues and profits you want to achieve in the next 12, 24 and 36 months?
The goal you choose should be challenging and realistic. It should be one you can enthusiastically pursue. It should not be either so easy that it is not inspiring or so difficult that it seems impossible to realize.
First, choose the goal for growth in revenues over the next three years. Then project the growth in profits which will result from that revenue growth based on current operating margins. Beyond this, what additional growth in profits do you want to achieve through improved productivity and efficiency. Add these two together to generate a profit goal for each year.
Formulate your proposed goals now and write them down in line 1 of your profit plan form. At the end of the book, you will be asked to review these goals in the light of all you have read and thought and to revise it if appropriate. You can always change your goals later, but it is important that you choose now before proceeding to the next chapter.