Strategies for Growth

By Camille Platt

According to the U.S. Small Business Administration (SBA), small businesses represent 99.7 % of all employer firms. Since 1995, small businesses have generated 64 % of new jobs and paid 44 % of the total U.S. private payroll.

Yet the success of small businesses does not come easy. The Bureau of Labor Statistics reports that roughly half of all small businesses no longer exist after five years and only one-third make it past their tenth anniversary.

The reasons behind these misfortunes range from not enough capital to poor cash management, a lack of understanding for customers’ real needs, a lack of differentiation in products or services, meager leadership, and ineffective strategies for business growth.

Most businesses have plans to grow sales and increase profits, but the chosen methods vary greatly and must be selected with careful thought and planning. What follows is a brief description of six different growth strategies and the stories of local small and mid-size companies who have succeeded through their careful implementation of new business plans.

Strategies for Growth

Market Penetration
A market penetration strategy is one where various tactics are employed to build market share and sales and profits with existing products in the same market. To increase market penetration, businesses can hire more salespeople or reorganize to be more effective in selling and marketing products or services. A business can lower prices or increase advertising and promotions to increase unit sales and overall revenue. Companies may also pursue higher prices with the expectation of greater overall revenue, bigger market share, and profits. Another option is to lead initiatives to improve products or packaging, and initiate tactics (e.g. loyalty programs) to increase usage of products or services among new and current customers.

Depending on the market, competition, and consumer response, each of these initiatives have varied levels of success. Often described as organic growth, a strategy of market penetration is among the least risky of many growth strategies. At some point, a marketplace can become saturated or the return on investment associated with different tactics is not sufficient to continue pursuing this strategy.


Expanded Distribution Channels
Another successful growth strategy is expansion into new distribution channels. One of the most prominent initiatives is selling products and services online in
addition to retail. Other channels of distribution include selling direct to customers (e.g. online transactions, mail order), self-service, micro-shops, internet-based retailers (e.g. Amazon), classes of trade such as wholesalers, smaller outlets, big box stores, and more. Generally speaking, each new trade class requires businesses to operate and sometimes staff differently, and all will deliver different levels of profitability.


Market Expansion
Often called market development, market expansion involves selling current products in new markets. Business owners are advised to pursue this strategy only after a product or service is proven and the proper evaluation of market conditions, along with financial models favor expanding. This strategy is often pursued when the opportunity for growth is limited in a current market, the probability of success in the new market is deemed high, or expansion is necessary to establish a foothold and preempt competitors’ actions. Market expansion has been the underpinning of many large companies that have expanded from a proven concept in one or limited markets to markets throughout the U.S. and
internationally.


Product Expansion
Also known as product development, product expansion involves developing new products to sell in current markets to existing and new customers. Product expansion is most successful when new or improved products for a current market align well with a company’s core competencies and organizational structure and are a natural fit for a brand that is already well known. Most often businesses must add new products to stay current with changing consumer and customer preferences, evolving market conditions, and competitive actions.


Diversification
Growth strategies also include diversification, where a company will sell new products or services, unrelated to its current business. This type of strategy can be very risky, as it often requires a substantial investment, and the company must develop expertise and operational capabilities around a business very different than what made it successful.

Companies pursuing this strategy must have a clear understanding of what level of capital is needed along with a realistic assessment of potential growth based on customer and consumer research and competitive conditions. They also need to make an honest assessment of the risks involved and have a solid plan for entering and then sustaining the new business.

There are three different approaches to diversification: full diversification, backward diversification, and forward diversification. Full diversification is when a totally new product or service is introduced. It is the most risky of the three. Backward integration is where an organization implements a product or service that relates to the preceding development or production of a current product or service. For example, a supplier of fresh produce invests in farms that grow much of what the company distributes. Forward diversification involves entering into a business that relates to the later stage of a products sale and delivery to a customer or consumer. An example
would be a manufacturer of snacks
enters into the direct store delivery business to ensure that its snacks are delivered fresh and more broadly in a market.


Mergers and Acquisitions
Mergers and acquisitions are very effective strategies for a company to gain a competitive advantage, strengthen its business in current markets, and compete in new markets with existing and different product offerings. Generally speaking, mergers or acquisitions that create the best return for business owners or shareholders will meet one or more of the following: improve the operational performance of the acquiring company (e.g. improve margins, lower costs, increase cash flow), remove excess capacity for an industry (which can benefit competitors as well), create access to new markets, acquire skills or technologies more quickly and at a lower cost, and consolidate highly fragmented markets where competitors are too small to achieve scale economies. In the case of an acquisition, picking a promising business early that can be developed is a key advantage for future growth and profitability.

GROWTH STRATEGIES: PRODUCT & MARKET EXPANSION, DIVERSIFICATION

Matt Hullander


Hullco; B&M Development; Chestnut Holdings; ChattaMedia;
Scenic Land Holdings; Hullco Heritage Foundation


 

Matt Hullander purchased local family business Hullco from his father, Bill, in 2007. Since then the business has more than quadrupled in size as the company has expanded its product offerings beyond replacement windows to include siding, roofing, sunrooms, decks and screen rooms, doors, and baths. “For us to grow we have to either add new products that we are good at or make our market area larger,” says Hullander. This year he will launch Hullco into Knoxville with former Tennessee Volunteers football coach Phillip Fulmer serving as the company’s spokesperson.

Beyond his success leading Hullco, Hullander has diversified his business interests into several different areas. In 2011, he started B&M Development, a commercial real estate development company that today includes a retail center on E. Brainerd Rd. and another that is under development closer to Apison. More recently, he launched Chestnut Holdings which is embarking on the development of a new mixed-use facility downtown. Because of his passion for thoughtful development, Hullander is also a principal in the Scenic Land Company, which is involved in several new developments that are meeting market needs, creating green spaces, and preserving the natural beauty and resources surrounding them. Another new business venture is ChattaMedia, a full service advertising and marketing agency.

“All of those projects were because of the opportunity I saw,” he says. “I love networking and looking for new opportunities that will generate a return and help others. I have enjoyed forming partnerships where there is a shared vision and mission and the opportunity to create value is clear.”

In addition to his business interests, Hullander, along with his wife Jenny, leads the Hullco Heritage Foundation and serves on several boards. He is the Chairman of the Hamilton County Zoning Appeals Board and sits on the Board of Directors for the Chamber of Commerce, The Pat Summitt Foundation, The Hunter Worley Foundation, and the Erlanger Children’s Hospital Council.

“With all the businesses and meetings, it gets hectic at times. I don’t want to take away any time from my family. It’s really planning and trusting my calendar and then making it happen. If I feel like I have a good plan in place, I’m going to work hard and make it happen. I go into everything with a well thought out plan and then execute so failure is not an option. It’s just the way I’m geared.”


Photo by Lanewood Studio

SFG.Quote.HolleyCapital is the fuel that allows businesses to grow, prosper, and succeed. Why is capital important to starting and growing a business? With capital, you create the runway to do whatever is needed, such as covering mistakes and miscalculations that occur frequently when starting a business. Adequate capital allows young companies to grow, and mature companies to achieve even greater scale. As bankers, we see too many businesses that are woefully undercapitalized. Without capital, businesses fail.  Running out of capital is the number one reason new companies don’t succeed.  Understanding the importance of capital is fundamental to operating a successful business.


R. Craig Holley
Chairman, Pinnacle Financial Partners, Chattanooga

GROWTH STRATEGIES: MARKET & PRODUCT EXPANSION

Greg Vital, CEO and President
Franklin Farrow, COO


Morning Pointe Senior Living & Independent Healthcare Properties (IHP)


In 1996 after years of working together in health care, Vital and Farrow realized people were living longer and staying healthier, but not everybody was destined for a nursing home. They wanted options. They wanted a quality facility that welcomed personal items and allowed them to remain independent of their adult children.

Developing their business plan in the evenings and on weekends, Vital and Farrow launched Independent Healthcare Properties. Initially, IHP focused on finding locations, constructing buildings, and leasing structures to nursing home companies that wanted to be in the assisted living home business.

By 2002, after the sale of their original buildings, they created a management company and shifted their focus to building facilities for services that they would oversee and manage. IHP developed its own assisted living center brand, Morning Pointe. Initially Morning Pointe was launched in the Chattanooga area, but since its introduction has expanded to 28 locations spanning five states.

Among several factors, the successful expansion of Morning Pointe can be attributed to the thoughtful research and consideration for each market.  Each location is selected following a feasibility study that includes demographic trends, market incomes, community regulations, and services needed, weighed against available land, competition, and costs to enter the market area.  “We believe the five states we operate in have a similar culture and regulatory environment,” Vital says.

The success of Morning Pointe can also be attributed to the introduction of The Lantern at Morning Pointe Alzheimer’s Center of Excellence. “It is important that we evolve our service to meet the changing wants and needs of our clients. In the early years, only a small part of the business was Alzheimer’s care. Today, it represents over 40 percent of the company’s business,” Vital explains. The company began with attached Alzheimer’s care wings, but now has nine freestanding Alzheimer’s Centers of Excellence.

Morning Pointe has also added in-house physical therapy in most buildings and remains dedicated to its mission of providing exceptional resident care and life enrichment in an aesthetically pleasing interior and exterior environment.


Photo by Med Dement

SFG.Quote.HutchersonThe best advice I can give to businesses looking to grow is to hire and retain talent that is smarter and better than you. Strike a sustainable balance between work and life for your employees. If you don’t create this, employee turnover will, even under the best circumstances, limit your growth. Without great employees, your services and products become a commodity. Being a commodity is not how you grow. Creating the ‘wow’ factor is how you grow.”


Donnie Hutcherson, CPA, GCMA, MBA
Managing Partner of Henderson, Hutcherson, McCullough

GROWTH STRATEGIES: PRODUCT & MARKET EXPANSION

Taylor and Mike Monen


Monen Family Restaurant Group


When the Monens opened Taco Mamacita at 109 North Market Street in 2008, their first agreement was just one restaurant. They had a history in the industry, and while their coworkers had made work feel like family, at times running multiple locations and catering operations felt like “always putting out fires.”

This time, Mike says, their strategy was to lean on trusted, well-trained staff and not exhaust themselves with extra hours trying to go it alone. The plan worked so well that staff retention was high, work was fun, and the Monens realized they had staff who deserved to be promoted but there was nowhere to promote them. Taco Mamacita’s second location in Nashville set a pattern to allow passionate, talented staff to become operating partners. Today MF (Monen Family) Restaurant Group also owns and operates a 450 Pizza in Sullivan’s Island, S.C.

Beyond their success with Taco Mamacita and the expansion to new markets, MF Restaurant Group has expanded to include various restaurant concepts and products. Among those are Urban Stack, – killer burgers and manly drinks; Community Pie – authentic Neapolitan and traditional New York style pizza; Milk and Honey – homemade Gelato, fresh fruit, popsicles, baked goods, and craft coffee; Clyde’s on Main, and Clyde’s on Church – collegial honky-tonk and a retro vibe with good food, good drinks, and good times.

“Opening a new restaurant is a huge challenge,” notes Mike. “You’re starting from scratch—you have to create a brand, which includes a name, a type of food, menus, recipes, designing spaces, and more. In creating our restaurants, we look at each business as almost an art canvas.”

Their latest project is a 5,600-square-foot, full service Milk & Honey in Nashville, opening later this summer. The restaurant will serve breakfast, lunch, and dinner while maintaining its focus on the homemade, craft goods that have made its Chattanooga location so popular.

Mike notes, “If you want to do it right, it takes special attention and care. We’ve learned a lot by trial and error, yet we are passionate about what we are doing.”

SFG.Quote.BlantonYou need to establish infrastructure to support growth. It’s vital to have a robust technology plan. Information systems that don’t talk to each other, or are burdensome to use, can create inefficiencies that only get worse as the business grows. Technology is typically a high-dollar investment for a company, so bringing in a specialist to create a technology roadmap for your business can pay huge dividends down the road by ensuring you get the right systems in place at the outset.”


Dennis Blanton, CPA
Practice Leader – Chattanooga LBMC

GROWTH STRATEGIES: ACQUISITIONS & NEW DISTRIBUTION CHANNELS

Roger Posacki, CEO
AnneMarie Spencer, VP, Marketing


PlayCore


In 1979, PlayCore was a holding company that operated two brands—one a commercial playground brand, and one that offered backyard play systems for the homeowner. Since then, through a number of acquisitions, it has become the largest play and recreation company in the industry, with a portfolio of 27 complementary brands that serve customers throughout the U.S. and internationally.

“We’ve always considered acquisitions to be a solid growth strategy,” says CEO Roger Posacki. “This may include a new way to go to market, an expanded product category, a new or enhanced manufacturing or distribution model, or a variety of other benefits to our business. By thoughtfully expanding our products and services through acquisition, we have been able fulfill our mission of building communities through play and recreation and meeting the needs of our customers – we want our customers to feel it is very easy to do business with PlayCore.

“Our recipe for a successful acquisition is a simple one,” adds Posacki. “We go through the due diligence process to select the right company to acquire, and then apply an effective and replicable integration process once they are part of our team. We support a decentralized structure; these businesses know their market, and we don’t want to disrupt their successes. What we are able to provide are additional synergies to help them grow, for instance integrating their products into our existing sales structure and distribution channels, and sharing technology, systems, and processes that have a track record for success. To ensure that our teams are aligned and feel that they are a part of the greater good, we embrace a strong corporate culture that is based on our mission and values, and then we communicate this to every level, at every location.”

Through well-planned and executed acquisitions, PlayCore today serves every area of the United States and Canada. On a smaller scale, it has established distribution overseas. In addition, the company has several businesses that go to market chiefly through the internet and Ecommerce.


Photo by Rich Smith

SFG.Quote.StockettYour overall corporate strategy should drive acquisitions, rather than acquisitions driving strategy. Don’t scramble to buy if something is for sale and it’s a shiny object. If you think there is a remote possibility of acquiring another business, go ahead and figure out what an acquisition strategy would look like, so you are prepared when a potential business is for sale. To create an acquisition strategy, determine your overall objectives. Is it to help you sell your products in a new geography or to sell a new product/service to existing customers? Next, consider what you can finance, your tolerance for risk, and what your internal rate of return needs to be. Finally, what is your plan for executing it. Are you going to be proactive and look for an acquisition, or are you going to wait for one to show up?


Andy Stockett,
Managing Director of FourBridges Capital Advisors

GROWTH STRATEGIES: MARKET PENETRATION, PRODUCT EXPANSION, ACQUISITION

Terri Holley


Embellish and Willa Collection


When Terri Holley opened Embellish, the boutique retail store on Frazier Avenue in 2005, she was capitalizing on the success of her investment in Carlisle, an upscale line of women’s clothing sold through independent consultants. The storefront gave her more visibility and a way to offer high-quality shoes to coordinate with each Carlisle clothing look.

Her focus was on growing her business organically and building her market penetration. “It was really important to me when I opened Embellish to grow my business organically. I really wanted us to get to know our clients, understand their needs, and get to know them personally so we could find the right products to meet their needs. That was my focus for a number of years and we experienced good growth.”

After a move to Warehouse Row in 2009 and larger retail space, Holley expanded her product offerings to include accessories, more handbags, scarves, and new lines of shoes. Each year for the next five years, the business experienced double digit growth.

In 2015, Holley acquired the North Chattanooga based Willa Collection. “Willa gave me access to a ready-to-wear business that I could not have entered very easily. It also offered terrific synergies with Embellish, such as clients that I already work with and others who we have not been able to reach. Some women want new shoes for a same outfit, others want to change the outfit.” Currently at 2 North Shore on Manufacturers Road, Willa Collection will rebrand under the Embellish name and move into the Embellish Warehouse Row storefront this fall.

Holley admits the biggest surprise in the acquisition was learning how the buying process for apparel differed from shoes. To help with the transition, she hired store manager Alex Sachel, who has buying experience in New York City. Yet her research and strategies for new shoes and apparel will remain the same: listen intently to clients and watch what is working in markets that match well with the Chattanooga area market.  “The more you get to know your client, the more you understand their needs. You’ve got to be informed. Research, research, research,” she says.

Recently, Holley sold the Carlisle business to focus her energy on Embellish and Willa
Collection. Looking to the future, Holley hints that a second location for Embellish may be in the works.


Photo by Rich Smith

SFG.ZuckerbergIdeas don’t come out fully formed. They only become clear as you work on them. You just have to get started. If I had to know everything about connecting people before I got started, I never would have built Facebook.”


Mark Zuckerberg, Founder,
Chairman and CEO of Facebook

GROWTH STRATEGIES: DIVERSIFICATION & PRODUCT EXPANSION

Tara Plumlee


The Catering Companies, LLC


Tara Plumlee started A Silverware Affair in 2004 to cater weddings, corporate events, private parties, and other events with superior food and professional staff. When Plumlee moved her Atlanta-based catering to the Scenic City in 2008, she realized that her Chattanooga clients needed a better variety of spaces for their functions.

Recognizing the need for venues and unique spaces, Plumlee began diversifying her business to purchase buildings to rent out as well. Today, she owns The Car Barn off Highway 153; The Mill in the Southside district; and the historic church at 901 Lindsay.

Her most recent acquisition is the $3 million, 21,000-square-foot Bell Mill Mansion in Ooltewah. Intended for single-day use, family vacations, or wedding weekends, the site has 14 bedrooms, an indoor racquetball court, tennis court, billiard table, gentlemen’s lounge, resort size pool, and 32 acres of private grounds. “We have entered an entirely new segment of the market with this type of property,” she says. “We can now compete for hotel business and compete for out-of-town events that wish to come to Chattanooga.”

For Plumlee, each decision has been made by simply listening to her clients’ ideas. More space. More access to the outdoors. More luxury. More options. “Introducing new products and services to the market on a consistent basis is critical to maintaining my position in the catering and events industry. I listen to my clients’ needs, and I fulfill them. It’s really that simple. My work is created by their desires,” she says. At times, it’s also about taking risks for the sake of growth. “You must be willing to lose it all. I have been doing that now almost annually for the past five years. You also must be willing to sacrifice your personal life for the life of the business. Most people aren’t willing to do that, which is why true entrepreneurship is rare and special.”


Photo by Garrett Nudd Photography