Shrinking to Grow: When brand focus is more important than brand scalability

Does generic talk of “growth” make you cringe? When you hear young companies aspire to scale, do you smirk a bit? “Been there, done that,” you might say. “It’s not all it’s cracked up to be.”

Six-Point's focus is on "second-stage companies" — meaning 10-100 employees or $1M-$50M in revenue. But that is a wide gap, and the growth-oriented companies in the first half of second stage have very different headsets than the focus-oriented companies in the latter half of second stage. Companies with more than $25M in revenue or 50 employees, especially ones that are decades old and may now be smaller than they once were, are battle-scarred enough to cast a skeptical eye at growth for growth’s sake. They know that not all revenue is created equal.

One of our clients, a product manufacturer, had experienced solid revenue growth over many years; they were getting national placements in “big boxes,” controlling full retail bays, and selling entire walls of planogrammed product. But it soon became clear that the bump in revenue didn’t equal profitability. The big boxes did what they do — demand more and more price breaks, start private labeling, and erode margins wherever they can.

This company had to make some hard calls: Say no to some high-volume, big box sales in order to focus on more profitable customers. Reinvest in streamlining operations and new product development to better serve their core customers. Begin to speak directly to new end-user customers and influencers, rather than simply relying on shelf space to drive sales.

This same decision to focus on profitability over unbridled growth is one that faces most privately held companies under $50M as they become large enough to attract attention and compete with companies (and sometimes even customers) much larger than themselves. At some point they have to ask … is growth the goal? Or is profitability and strength really what we are looking for, even if we have to shrink top-line revenue to get there?

From a brand perspective, this is a time when saying no is much more important than saying yes.

If your company is in a period of needing to focus on its core instead of simply chasing growth, here are four critical questions that you must be able to answer:

1. Who is your primary customer? (Yes, this can be someone other than the end user, such as distributors or franchisees. No, you can’t have more than one. More than one primary customer will guarantee underperformance. As Robert Simons of Harvard Business School underscores, the competitor who has clarity about its primary customer and devotes maximum resources to meet their specific needs will beat you every time.)
2. Is this customer profitable when we include all aspects of making and fulfilling the sale?
3. Where do our core values and our primary customer’s core values intersect?
4. How can we maximize this customer’s brand loyalty? What would make them accept no substitute for our brand?

These should be your areas of focus as you hone your brand strategy: Protect and defend your core. Focus your capital and human resources as much as possible towards your primary customer, and cultivate their brand loyalty. Minimize resources that are allocated to attracting secondary customers or any unprofitable business.

Yes, the overall size of your company will shrink, but if done successfully, the business will become more profitable, employees more engaged, cost of customer acquisition and customer price sensitivity will drop, and customer retention will increase. From there, you will have the groundwork laid for a next stage of growth that is purposeful and focused.