Ron Walker, co-founder of a Boston merchant bank specializing in lending to established small businesses, offers his tips for bringing energy back into a successful small business. He notes that some businesses can get too comfortable with relative success, and fail to stay fresh in the market by utilizing new techniques like business diversification, social media advertising or simply allowing a new set of eyes look over the business model to identify possible weaknesses and areas to improve. For more on this continue reading the following article from The Street.
New businesses get a lot of attention, whether it’s strategies for building a social media base or applying for a first bank loan. Less often do we see attention for businesses that have been around for more than a decade and are profitable but in a holding pattern. To compete with today’s newer, faster, leaner and most likely e-commerce-friendly businesses, these older companies need to get the wheels spinning again.
Ron Walker is co-founder and partner of Next Street, a Boston-based merchant bank and adviser serving small urban businesses typically 15 to 20 years old and with $5 million to $60 million in annual revenue.
Walker spoke recently with TheStreet about what it takes to get older small businesses growing again.
What are some sure signs of an aging, and possibility deteriorating, business?
Walker: I think a few things. Operating receivables aging past where they should be is a clear sign. Lack of diversification in the business and margins deterioration is really a clear sign. And the last one I would say is management. Clearly if there hasn’t been a change in management, but there needs to be some sort of succession planning — that’s a telltale sign.
What are some strategies businesses in this position should use to kick-start growth?
Walker: They need to embark on a strategic plan. They need to do a forensic analysis of their business and understand where the drivers of growth and profitability are in the business and really conduct a plan that they can execute so that they can be flexible and diversify their business model.
Is the answer always to diversify the business?
Walker: Not necessarily. I think they need to look at the business they are in and make sure they are getting the margins out of that particular business. A number of times we will also see two specific lines of business where one is much more profitable than the other. The issue isn’t always diversification; the issue is just making sure you’re getting the most efficiency out of the business model that you have.
What are some common mistakes that are made when making the transition?
Walker: Two things. One of the most important things is that they try to put more capital toward the problem. Many people believe that it’s really just about the financing, or just about the capital. So if the margins are low or they’re not being able to get penetration, they just go out and borrow more and do the same thing. That happens within businesses very often.
Secondly, they don’t take a very hard look at their business with a third set of eyes so they can get an honest opinion of what’s going wrong.
How does social media play a role in keeping businesses fresh? Is it suicide if you don’t have your business embedded in a strong social media outreach plan?
Walker: Businesses have to leverage social media as well as traditional advertising. In social media they have to make sure that the audience they are trying to speak to is an audience that uses, leverages and has access to social media. The risk is if they don’t do it strategically. They have to look at their company, look at their brand and do an audit of what really works so that the social media is working with the website and the collateral, etc. Today you have to [use social media] because it’s going to bring you more opportunity, more people see you, more people have access to you. So it’s absolutely a clear tool they have today — very cost effective, also — in the marketplace.
Any final thoughts?
Walker: I would just again emphasize that these are very good businesses that are able to move to the second growth. We just recommend strongly that they embark on strategic planning and realize that it isn’t just about capital, but about leveraging the right tools and expertise to get their business to the next level.
The article was republished with permission from The Street.