basic metrics. But it is amazing how often B2B leaders get lost on their way to the end game. They get bogged down in the trends du jour—hot topics such as brand equity, change management, leadership styles, CRM, cloud computing, and social media—and they lose sight of what’s really important: the timeless grail of sustainable, predictable, profitable growth.
That’s why the first step in B2B success is a clear and unwavering vision of the outcome every company is striving to achieve. Whether your company is a publicly traded multinational, a venture-backed start-up with IPO aspirations, or a privately held company seeking the next level of success, SPPG should be the goal of your strategic playbook.
Profitable Growth…
It is obvious that turning a profit is a must for any company, and owners expect profits to grow year over year. In booming economies and markets, profits aren’t all that difficult to capture. You keep the shelves stocked and fill the orders. But what happens when prices get driven down because the economic cycle heads south, market growth stagnates, or the competition heats up? How do you grow profits when top-line growth stalls or worse, turns negative?
Typically, profits without revenue growth come from cost-cutting initiatives. These activities are often necessary to stabilize a company and bring operating costs back into line, and they can deliver the profits owners demand in the short-term. But over the medium and long-term, these savings cannot support a company, especially one that aspires to grow and lead its industry. Without profit growth, from where will the capital come to fuel growth activities, such as research and development, account development, expansion into new markets, and strategic acquisitions? How will efforts to combat falling prices and enhance profitability, such as staving off competitors and battling commoditization, be funded?
It’s clear a company cannot cut its way to greatness. At some point, the cuts bite through the fat and into muscle, and begin to hamstring the company. In fact, research shows that downturns are the right time to boost investment levels. David Thomson’s Blueprint Institute found that companies that invest for growth during downturns outperform companies that hunker down until the economic cycle recovers.
To grow, a company must generate the necessary extra cash through top-line growth. But, is all top-line revenue growth worth pursuing? That depends on the margin you earn from what you sell. It is commonplace for companies to pursue any and all sales, especially during downturns (“Get deals in the door!”) without fully calculating:
1 All costs to fulfill the contract, including on-boarding new clients and assimilating them into the organization.
2 The margin needed to provide a return large enough to cover the cost of capital, plus the measure of profit necessary to fuel investment and compensate owners.
3 The opportunity cost of diverting resources to fulfill contracts with low economic value, leaving none to perform activities that can be sold at a higher value.
For example, some B2B services companies chase short-term contracts, while others pursue long-term assignments that enable them to leverage their staffing and sales costs over time. Likewise, some product engineering firms chase assignments for feature and function enhancements on existing products, while others focus on customers who are making large-scale investments in products capable of transforming markets and industries.
We’ve worked with both types of companies, those that can’t seem to help chasing every incremental dollar to boost their short-term results, and those who understand that enduring success requires a dedicated focus on long-term, large-scale revenue growth. The latter companies live by the credo that revenue quality is just as important as revenue quantity. Inevitably, they are companies that flourish or get acquired at premium valuation. Meanwhile, the former companies are still shuffling their organizational charts and slashing budgets.
So that is the first half of the SPPG story: profits must come from revenue growth, and growth must be profitable.
…That Is Sustainable and Predictable
The second half of the SPPG story is where Wall Street darlings start to pull away from the also-rans. Value investors like Warren Buffett search for profitable growth that is consistently delivered over time—that is sustainable and predictable. For example, they look for companies whose innovative products command a premium in the marketplace and are protected by patents or other barriers that stifle competition and yield attractive margins. Predictability and sustainability are growth attributes that engender analyst confidence, lower investor risk, and boost the value of a company over its competitors.
Southwest Airlines is the only B2C example in this book, but its growth record is too good an example of sustainability and predictability to ignore. Southwest delivered 17 years (71 quarters) of profitable growth. It was the only U.S. airline to outperform the Dow Jones over that period. In fact, no other major airline was even profitable during that time. As you might expect, Southwest’s stock increased 15-fold while the stock price of every other U.S. airline (Delta, American, US Airways, JetBlue, etc.) declined.
The B2B Road to SPPG
Sustainable, predictable, profitable growth is important to B2B and B2C alike. The destination for both types of companies is the same. Again, what varies between the two worlds are the keys parts of the journey which must be navigated in a very different manner.
As depicted in Exhibit 1-1, the staff functions of an organization, including Human Resources, Finance, Training, Manufacturing, and other back office Operations function very similarly in both B2B and B2C companies. In either type of organization you can utilize the same best practices and tactics. For example, B2B and B2C companies will manage Procurement in about the same fashion. As such, holding all other things constant, a tweak in any of these operational areas will not propel a B2B organization to SPPG, although a severe deficiency (such as rampant costs) could be keeping you from operating from a position of strength.
In any case, I do not focus on these areas since they are not the key differentiators for B2B business. Instead, The B2B Executive Playbook will focus on the areas that do affect how B2B companies reach SPPG: the “Go To Market” (GTM) areas of Strategy, Marketing, Service, Research and Development (R&D), and Sales. It is in these functions that the approach for B2B companies must be vastly different from B2C.
Exhibit 1-1: Sustainable, Predictable, Profitable Growth—A Different Go-To-Market Path for B2B Companies
As I have discovered in working intimately with B2B companies and their executives, there is one concise path to get to SPPG:
B2B companies must engage decision makers to help vet and formulate company strategy.
B2B companies must become masters at leveraging the domain knowledge of their customer executive peers to discover game-changing innovation and deliver more value to the markets they serve.
B2B companies must build and leverage customer executive relationships to accelerate profitable revenue growth.
The following chapters will explore why these elements must be central to every B2B company. I will first show you how the B2B world is a different game and why that will shape your game plan to sustainable, predictable, profitable growth.
CHAPTER 2
A DIFFERENT GAME
UNDERSTANDING HOW B2B IS UNIQUE
Michael Jordan is the greatest basketball player of all time. He could hit a game-winning basket under the most extreme pressure. He was so talented a player that he could carry a team to a championship. He did it in high school, college, the Olympics, and an astounding six times in the National Basketball Association (NBA). But when Jordan decided to play baseball, he couldn’t hit a change up or a curve ball well enough to earn a spot on a minor league team. One person, two games, two very different outcomes: victorious domination and failure!
The parable of Michael Jordan’s two careers is a story my colleagues and I see played out time and again in the B2B world. It comes to mind whenever we see a company