The 2020 Mid-Year Economic Update_long

Want to Grow? Stop Being Complacent

Distributors need to focus on developing thoughtful bold moves for profitable growth.
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One of the most important recent trends is the accelerated interest and involvement of private equity investors in wholesale distribution. Stuart Mechlin's blog on mdm.com focuses on thinking differently by using a Private Equity Investor Framework. He recommends distributors think more like investors to add value to their businesses.

One of the ways that private equity investors create additional value is by planning, developing and executing thoughtful bold moves.

In this blog I will discuss this powerful approach and encourage every distributor owner-operator to think like a private equity investor and increase their use of the thoughtful bold move.

Let’s define the thoughtful bold move:

Thoughtful: You have to think about where you are going next. But don’t get caught up in every detail – don’t get “analysis paralysis.” You need to do enough thinking to mitigate risk but not any more than that. You need to do enough thinking to get rid of what “seems like a good idea at the time.” You have to swing at strikes to get home runs. The goal is not perfection or no risk. As Andrew Groves of Intel said: “Perfection is the enemy of the good.”

Bold: It’s another word for audacity – one of the favorite words of the famous General Patton. However for distributor operators, audacity must be tempered with thought (see above). It must be tempered with risk mitigation. It is tempered with looking everywhere – inside and outside the organization – for ideas, best practices, success stories and opportunities to create value. It is the opposite of complacency. It is the opposite of the “no good if not invented here” philosophy. And it applies to both grand strategy and street tactics. There is as much boldness in taking routine business to a new level of net profitability as there is in buying a company.

Move: The word move implies action, doing something different or doing it in a different way. And doing it with metrics, execution and accountability. A good definition is advancing the base runner, base by base, to get home.

You want to foster a culture of the thoughtful bold move in your organization. You want to include as many team members as you can. Any move you make must be tracked and incentivized. And it must be celebrated – both the successes and the failures. Encouraging the thoughtful bold move must be tempered with “no harm no foul” for trying.

Here are the important reasons why you should be developing more thoughtful bold moves:

  1. Nothing screams diversification more than a mix of bold moves in various stages of execution and development, attention to the ongoing day-to-day business and diminishing resources applied to unprofitable activities.
  2. Thoughtful bold moves have the potential to turn into real trends – see The Trend is Your Friend – as opposed to just operating in a trading range.
  3. By design or by accident, your competitive environment is dynamic, bold and always changing. Your competition is not waiting on your schedule. At the very least, you have to keep up to stay in the game. At best, you create money-making value that wins against the competition.
  4. Thoughtful bold moves will distinguish you with your future managers, customers, suppliers and your own team. Additional value creation is all about building a sustainable, growing company that will appeal to and retain future decision-makers.

So what are some thoughtful bold moves that can add value to your distribution business? The following examples are from real distributors (many from the pages of Modern Distribution Management) operating in similar environments, with one important difference. They are thinking like investors. They understand the need to view at least a portion of their business as a bold undertaking if added value creation is the goal.

These examples are a mix of thinking boldly with the day-to-day business, as well as brand new initiatives:

  1. Granular customer profitability analysis and the resulting actions. This is boldness applied to routine ongoing business.
  2. Divesting or diminishing resources applied to lower-return segments of the business.
  3. Using analytics to grow your marketing program. Get serious about marketing as an equal partner to your predominantly salesperson-centric activities and culture and enjoy profitable new growth in the process.
  4. Acquisitions, including taking advantage of channel convergence opportunities; arbitraging a smaller poor-performing competitor; or consolidating a core competency.
  5. Strategic pricing initiatives. Be bold about realizing net profit opportunities.
  6. Significantly improving inventory turns through the use of other distributors, master distributors and 3PLs.
  7. Exploring and signing up for collaborative sales opportunities with other distributors and suppliers that extend your reach in your core areas of expertise.
  8. Figure out how to use the reach of Amazon and eBay (and others) to your incremental sales advantage.

So why is the private equity investor able to assist their distributors to make both qualitatively and quantitatively better moves? Three reasons: First management has more time, freed up from non-core activities, to look at, test, reject and develop thoughtful bold moves.

Second, management now has better access to outside advisors who have a vested, monetary interested in your success. Management can use outsides advisors to test and share best practices. Captain Kirk and the crew of the Enterprise may “boldly go where no one has gone before,” but you need to boldly go where you can mine best practices and knowledge that will promote success but keep you out of trouble.

Finally, the private equity investor has additional resources from freeing management from non-core activities or through accessing economies of scale.

These can be duplicated by any leader if they are taking thinking like an investor seriously.

Stuart Mechlin is a partner with Real Results Marketing. After 18 years in the wholesale distribution industry, including the role of senior vice president of Affiliated Distributors’ Industrial Supply Division, Mechlin is actively engaged in working with distributors, suppliers and technology companies on growth, marketing and profitability strategy/tactics. He is a member of several wholesale distribution company boards of directors. He has worked in such varied management roles as sales, finance, international J-Vs, purchasing and distribution for several public and privately held best-practice companies. Mechlin is also a member of MDM's Editorial Advisory Board. Contact him at stuart@realresultsmarketing.com or connect at www.linkedin.com/in/stuartmechlin.

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