SOI 2013 - Growth Pattern

How To Keep Up With Growth Without Adding Too Many Costs

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GrowthState of the Industry data shows that distributors are growing. Here's how to keep up with growth without adding too many costs.

Within the past few years, distributors have without a doubt begun to grow. Industry revenues reached $19.4 billion in 2012. Company revenues increased in 2012, according to 58% of distributors. And, the Counselor Confidence Index in the first quarter of 2013 showed that distributor outlooks in the industry are higher than at any time in the past five years.

With those positive attitudes and fast-growing revenues, though, comes a challenge that companies need to overcome: keeping up with the fast growth and ensuring that service levels remain high.

"If there's growth you have to understand the growth," says Brad Akers, president and owner of Chicago-based Tip Top Branding (asi/344851). "Is it a random couple of big hits from clients that aren't guaranteed to be there next year? Or is it a steady increase in orders?"

It's a tough management issue for any company, but particularly for one that's small or mid-sized and at the mercy of shifting order volumes, says Michelle Benjamin, founder and CEO of Benjamin Enterprises, a workforce solutions company, and TalentREADY, a talent management provider, based in Bronx, NY. To get any sort of clarity and hold on an issue that's such a moving target, Benjamin says, it's important to first know why your distributorship is growing. It's not as simple as just hiring full-time or part-time workers during busy seasons, she says. You have to ask, "Is it seasonal? Have you recently done a big promotion? Are you networking more?" Benjamin asks. "All of these contribute to business growth." But it's vital to determine if that growth is temporary or long term.

David Goldsmith agrees. Adding staff as a knee-jerk reaction to increased orders can be dangerous, says Goldsmith, a consultant with Goldsmith Organization LLC, a business consultancy based in Manlius, NY, and author of Paid to Think, A Leader's Toolkit For Redefining Your Future.

"When you look at staffing as the solution you often find yourself filling roles," but not necessarily advancing the company.

And while staffing can be the key a distributor is looking for, it's crucial to figure out what it means to the bottom line to take on new staff. "Take a good hard look at your books to see if you can afford to hire an additional employee," Benjamin says. Often small-business owners fail to consider the "total costs" of a new hire. That includes not just hiring someone and paying her salary, but also covering her payroll taxes, benefits, worker's comp costs, added equipment to do the job, as well as travel expenses and other costs distributors might incur with new hires.

The key is to grow "without creating significant stress in any part of the organization," says Marc Simon, CEO of Top 40 distributor Halo Branded Solutions (asi/356000). One way to do that is to outsource rather than hire another employee. Particularly for distributors who are operating with a handful of employees to begin with, outsourcing may be the best option, since it helps a company ramp up production capability without ramping up employee costs. Add too many costs and a distributor can dip into his margins, which can be slim to begin with for small firms trying to get a leg up in a competitive marketplace.

Certainly, when a sudden uptick in business means hiring on the fly, finding able-bodied employees fast can be daunting. The biggest mistake business owners often make, say experts, is hiring a worker in a moment of panic only to find out that they don't have the skills they seemed to promise in the interview, and are suddenly a bigger financial burden than the company bargained for.

For distributors with a home-based business or those with tiny staffs, pulling in family help can sometimes be an option when blindsided with unexpected orders, says Benjamin. But it can also be tricky. Your sister may be your best friend, but if she doesn't share your work ethic or love for all things embroidered, she may be dead weight more than she is a helping hand. "You need to make sure you can let them go if it doesn't work out," Benjamin says – something that can be awkward at best and devastating to a relationship at its worst.

Often small-business owners fail to realize that technology, not staffing, is the answer to handling explosive growth, says Goldsmith. Automation, for example, can transform a company's ability to handle a huge influx of orders. But, again, distributors need to make sure they're clear on what that kind of investment – conceivably to the tune of thousands of dollars – will do for them. Too often business owners mistake data entry for automation. "Getting an order from the Internet and typing it in, that's not automated," Goldsmith says. "Automated means it goes into an ordering system seamlessly so no one has to touch it."

But even seamless ordering can't always handle the packaging and shipping needs of increased orders.

For that it's crucial for distributors to know their corporate costs week to week and have clarity on when a new hire is a good hire. "We take a look every week at our staffing levels, then our orders, then our shipments and what's going on within our marketplace," says Taraynn Lloyd, director of marketing for Edwards Garment (asi/51752), based in Kalamazoo, MI.

She suggests distributors should do the same. And they should never "add staff just to add," she says. In fact, Goldsmith says, there's really no magical accounting formula for determining when it's OK to add staff – when revenues have risen for six months, say. Instead, he adds, it's more about knowing your marketplace, your order history, your clients and your current resources.

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