The Case of the Nepotism-Qualified, VP for Growth

Jon must start an outside-in growth strategy to balance an inside-out strategy^1..

Jon’s Problem

Jon lead successful growth work in three firms. He is beginning a two year stint as CEO and President of a chemical distribution firm. His marching orders from the firm’s founders are brief.

“We expect you to mentor Ben, our son and VP of Growth. We want him to have a profitable growth strategy in place when he takes over in two years as CEO and President.”

Before Jon joined the firm, Ben ran an inside-out customer satisfaction survey. Ben used the firm’s sales reps to question their purchasing agent contacts. .

Jon’s past successful growth work balanced inside-out customer research with outside-in research.

Outside-in results in deep understanding of customers’ needs.

Often, needs customers themselves haven’t yet identified.

Jon’s Solution

Jon knows of my outside-in, customer research expertise². He asked me to meet with Ben. Ben, Jon, and I met at their office. During the meeting we outlined an outside-in project for discovery of growth opportunities in the “all others” market.

(“All-Others” is a motley assortment of 11 markets that do not fit into the firm’s three major markets.)

Jon and Ben wanted answers to these questions.

1. Why do current and potential customers, in this market, buy distributors’ chemical products and services?
2. Which potential customers have current or emerging needs the client can fulfill?
3. Who are potential partners for collaboration to learn how to meet these needs?
4. What is the potential revenue growth in 4 years if the client pursues the top 3 growth opportunities.

At the beginning of each interview, the respondent was told:

“My client is a regional provider of chemical products and services. They have an innovative service package that the client has piloted at selected business partners.”

Executive Summary: Growth Opportunities in “All Others” Market

Critical insights emerged during deep interviews with forty respondents.

1. Majority of the respondents’ firms have corporate-wide programs to cut supply chain costs, by outsourcing supply chain management (SCM).
   Majority of respondents take part in evaluation of new distributers.
   
   • 60% of respondents were now evaluating new distributors.
   • 15% planned to begin evaluation.
   • 25% did not plan to check out new distributors (costs too much)

   “Team-based evaluations of distributors predominate in our firm, and in our market. Purchasing is only one among equal decision makers”
     Buyer-Raw Materials (also member of regional benchmarking group on sustainability) … Gerber 

2. Governing objective of SCM evaluation teams.
   

   When buying critical supplies, buy from a trusted source. One that always shows up in time, with the right stuff, and with the lowest cost.

   Teams’ key issues when evaluating new distributors.
   
   • Supply chain integration and strategic partnering
     
     • Inventory control
     • Information technology and decision-support systems
     • Clear understanding of what value they will create for the firm.

“ George, most of what you see on SCM evaluation pushes replacement of existing product SCM. We say we need it. But, we can’t sell it internally. Even if the savings would be > $50M, Reason is, our R&D guys are expensive.
Your client’s effort would be better directed towards our new product work. Here we have on-going $6M projects. Here is where the time is ripe for your client to pitch their innovation”
     Mgr. Chemical and Raw Materials … Amway

3. Three “all others” markets have profitable, private-label opportunities for Jon and Ben’s firm … personal care, home care, and OTC (over the counter drugs).
   Potential revenue growth for the firm, in the next 4 years, is in the range of $4M-7M.

Five respondents, who are early adopters³, requested that the client contact them. They wanted to understand more about the client’s innovative offering.

Outcome

Jon and Ben set up meetings with the new product team at all five early adopter respondents. Before meeting, they did their homework. They understood what a mutually beneficial value proposition would look like to the customer’s team.

Key was the competitive advantage that had sold them to private label customers in their current major markets. This advantage reflected the founders’ rule … all employees work as a team to deliver quick, reliable, and low cost responses to customers’ requests.

They learned that prospects were moving toward a sole distributor of chemicals and services. The distributor must have distribution sites within a 200 mile radius of the customers’ sites in the US. Jon and Ben began to use their firms positive cash flow to buy small scale distributors in key sites.

Jon and Ben invested in developing 3 growth opportunities with potential to meet the 4 year goal.

Four years on

Revenue from the “all others” market is > $4M.

Three acquisitions made of small distributors owning key sites.

Employees own 20% of the firm through an employee stock ownership plan (ESOP)

Twenty years on

Firm’s revenue rose from $50M/yr. to > $150M/yr.

Firm has 5 manufacturing and warehousing sites in US and 1 in Mexico.

Manufacturing certified under guidelines from: FDA, GMP, and ISO 9001:2015.

Employees own 100% of the firm through ESOP.

Lessons Learned

Why don’t most sales teams “sell” what prospective customers want. Because they don’t know what customers really want … and why.

Endnotes

1. Outside-in view of customers: Create what the customer values. Don’t focus on product features.
   Inside-out view of customers: We know, better than customers, what features they need.
2. Elicitation
   Recognizing Early Adopters
   Drawing Out Latent Needs
3. Early adopters … Wikipedia