By Mike Marks – Indian River Consulting Group
If your 2024 plan is to do more of the same but just better, I’d argue that’s not a plan at all. Right now, distributors need to have a serious conversation about:
- What they’ll do that’s different.
- What they’re going to invest.
I see a lot of distributors talking in circles about what they could do and what others are doing to grow sales, expand margin and increase business value. However, when they finally come to the table to define their objectives for the next year, they don’t make a larger commitment.
Distributors can’t afford to do that again this year. They need to invest in the game, instead of just talking about it.
When you come to the table this quarter, look to those areas of your business where there’s the most leverage you’re not leveraging now. In many cases, the two primary areas are:
- Cash flow
- Agility
1. Cash Flow to Demonstrate Increasing Value
Growing sales, expanding margin, increasing business value – it’s about performing at a level to warrant the high EBITDA multiples of market-leading firms. Whether the business is selling or not, it increases capabilities to both invent and acquire others. In short, this is playing the game to win instead of playing it not to lose.
As Kevin Sachs, co-leader of the North American distribution sector practice for McKinsey & Company, recently outlined on The MDM Podcast, distributors with high valuations differentiate themselves from competitors by demonstrating to shareholders that they’re achieving faster revenue growth, expanded profit margins and more efficient leverage of working capital. It is by demonstrating this that they’ve convinced shareholders they’re worthy of that higher multiple.
The lightbulb here? If you’re not demonstrating high growth, high profit and efficient use of working capital, the value of your business is going to decline every year. Typically, this is a byproduct of executive complacency.
I second Sachs’ emphasis on continuous improvement as the ladder from losing value to building it. As Sachs points out, those higher-value companies focused on building more effective sales processes, leveraging data and making efficiency part of their culture.
2. Agility to Zig When They Zag