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The Seven Irrefutable Laws of Manufacturing Business Growth

⏱ Reading Time: 6 minutes

As part of our ongoing effort to support US Manufacturers, we are writing today about The Seven Irrefutable Laws of Manufacturing Business Growth. There are of course many things that manufacturers can do to build and improve their businesses, but ignore these 7 and you’re sure to be in trouble.  What makes me such an authority on the subject?  I’m in the business of helping manufacturers grow, and helping them close when they are in trouble.  As a Manufacturing Business Broker and Industrial Auctioneer, I sell millions in businesses and equipment each year, and deal with both ends of the manufacturing spectrum, success and failure.  I’ve been doing this for almost 20 years.   Here is another reason to listen.  I’m greedy!  Yeah, you heard me right, I’m greedy, and I have an ongoing interest in the health of the manufacturing sector.   Why?  First, it is more fun and profitable to sell successful manufacturing companies!   Second, if the manufacturing industry gets into too much trouble, my business declines too.

Based on the patterns I’ve observed over the course of my career providing services to the manufacturing industry, here are the

7 things you MUST do to have a successful manufacturing business.

In the coming months we will delve into each of these in much more detail.

1.   Your Company Must Be Highly Visible:  By visible I mean that customers must be able to FIND you on the web.  If your immediate response to this is, “I don’t need to do that because I have repeat customers that know how to find me,” please do me a favor and keep my contact information because you’ll probably find yourself needing to sell within a short period of time.  Want a wake up call?   Of the manufacturers that end up on the auction block, upwards of 95% don’t have web sites!  Wake up and smell the keyboard folks.  Also, what if your existing customers go out of business?  You should always be visible to and pursue New Customers.  In future articles I’ll discuss this in much more detail, like how to get a great web site without giving up your first-born or mortgaging your home.  It can be done, and I’ll teach you how.

2.   Get the Right Asses in the Right Seats:  Do you have employees with poor work ethic or bad attitudes?  Fire them!   Many small manufacturers will lament, “but I can’t, they’re family.”  If you go out of business, your “family” member won’t have a job anyway.  I’ve seen this one thing wreck countless businesses.  If you’re afraid that you won’t be able to find a replacement, you’re wrong – there is always someone else willing to work, and who will appreciate the opportunity.  This is a hard thing, no doubt, but consider that you might be helping the family member grow up and take more personal responsibility for his or her own life.  Let’s face it, you won’t live forever – and if your family is abusing their work situation, they will struggle after you are gone.  You are not helping them by keeping them; you are enabling their bad behavior.  Of course I’m not just referring to family but any team member that is not pulling their weight.  If you have to ask someone what he or she accomplished in a day or week, if its not completely evident, they should NOT be in your employ.  I’ve had to do this several times and each time I was eventually grateful that I had the courage to do it.  I ended up with a new team member that did at least double the work!  In future installments, I’ll discuss how to FIND quality employees that will be loyal and thankful for the work.

3.   Work On Your Business, Not Just In Your Business:  Small manufacturers are notorious for this.  They excel at “widget” making, but forget that so much more is necessary to run a successful business.  Working ON your business

means thinking and forward planning for growing it and putting systems in place to ensure its continuity.  About half of your time should be spent planning for the future.  “Impossible” you say?  As I write this, I stare at a plaque hanging in my office with a Walt Disney quote, “It’s kind of fun to do the impossible.”  In coming installments we’ll share the HOW of this and stories of our own growing pains.  Our goal is for small manufacturers to develop systems for managing business that promote steady growth.  We want you to be able to pass the torch to the next generation or have an operation that can be easily sold to fund your retirement.

4.   Market Yourself and Your Company:  I cannot emphasize this enough!  You get what you go after.  If you’re not going after new business, yours will DIE!  Here’s a typical story from industrial auction world that will drive the point home.  I’ve seen this same scenario play out dozens of times.  Accelerated Buy Sell, Inc. gets called into a small manufacturing company to do an auction.  The owner starts to inform his customers that he will be closing.   Miraculously, last minute orders come flying in from these customers.   Could the fate of these auction clients been different had they marketed themselves on a regular basis, to not only existing customers, but new potential customers as well?  You bet!  Perhaps their sales would not have dwindled to such a level that there was no business left to sell and they had no choice but to auction their equipment.

5.  Keep Current With Technology:  I know some small manufacturers just love their old machines and refuse to part with them.  At the same time they wonder why younger guys in the business with half their experience are getting more business than they are.  Have you considered that your competitor can make the same part in a fraction of the time because he uses more modern machines and techniques? If that saved time allows him to charge half the price you do, he will eventually put you out of business.  When I discuss technology, I’m not just talking about machinery.  Technology can help your business in MANY ways.  Many old time machine shop owners have not embraced the computer age.  They prefer antiquated methods of accounting and invoicing.  By doing so you are negatively impacting your company’s finances.  Your bookkeeper’s job could be done in half the time if the system were computerized.  Additionally, if you ultimately plan on selling your business to finance retirement, buyers will discount the purchase price if you are not computerized.  Its time to get out of the dark ages folks, but don’t worry, its not as expensive or scary as you think!

6.   You Must Have Diversification of Your Customer Base:

If you work for only one primary customer, your small manufacturing business could disappear in an instant!

What if that customer goes under?  Think it can’t happen because they are too big to fail?  They don’t have to necessarily fail, just update their product and no longer have need for the parts you made that went into that product.  We’ve auctioned off countless manufacturers that had “all their eggs in one basket.”  In my opinion you should NOT let any one customer become more than 25% of your income base.  Diversification of your customer base will help immensely when it’s time to sell.   Buyers are highly reluctant to acquire a business that has only one primary customer, and they will seek to discount the purchase price.  In contrast those manufacturers that have diversification of their customer base typically have higher sales and will command a higher purchase price.

7.   Keep Your Eyes Open For Acquisition Opportunity:  Acquisitions can be the fastest way to grow your manufacturing business.  Are you thinking that you don’t have enough money for acquisition?  Think again, because you just might.  Perhaps acquiring an entire company or competitor is out of the question financially.  That doesn’t mean that you can’t use this strategy to grow your manufacturing business.  Consider the acquisition of a customer list or product line.  Opportunities abound as old timers leave the industry.  Some have no children to take over the business and opt for the auction method of cashing out, even though they have ongoing work.  Customer lists and small product lines can be acquired easily from these folks and for much less than the cost of acquiring a thriving ongoing business.  How do you find these opportunities?  We’ll discuss many ways as we expand this series on building your manufacturing business in the coming months.   For now, make friends with your favorite industrial auctioneer!  We encounter more opportunities in this area than anybody else!

About Frances Brunelle

Frances Brunelle is the founder of Accelerated Manufacturing Brokers, Inc., which specializes in the sale of lower middle-market manufacturing companies nationally. Fran and her team help to ensure the continuity of U.S. Manufacturing by transitioning ownership to the next generation of entrepreneurs. Recently Fran was named to 2020 Most Influential Women in Mid-Market M&A (Mergers & Acquisitions). Fran is also the host of the WAM (Women and Manufacturing) podcast, a Jacket Media production. Fran writes on topics that help manufacturing business owners prepare their companies for sale and navigate the sale process to ensure a positive financial result in support of their retirement.

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