Don’t get stuck in the slow lane

When the upturn comes bounding along, the last thing you want to see happen is the distribution channels – which may have suited downturn conditions – slowing your growth business down.

A high growth business is a bit like a finely tuned performance car – all the parts have to work together seamlessly for the driver to get the best out of it.

But what if the available roads were narrow, poorly maintained and of limited length. Just think how frustrated you would be to have purchased the best car available only to have nowhere to take it.

This is a bit like a growth business which has the capability and capacity to fuel sustained growth but is lacking the distribution channels to get its product to market. Planning for capacity in your outbound channels is just as important as fine-tuning the internals of the business.

You will undoubtedly experience a lot of impediments to growth if your planning system does not take into account the anticipated levels of activity at different stages in the growth curve.

In the case of distribution channels, not all channels are equal. They vary in capacity, throughput and destination. Thus a wholesale agent arrangement might work for a while but may not have sufficient market reach to service your growing business.

A direct sales approach might be effective for high end customers, but is inappropriate for higher volume low priced products. A knowledgeable and skilled sales force might be fine, but what if you can’t recruit enough suitable candidates.

What you need to do in any growth business is to simulate the business under different conditions and varying levels of activity. Once you have determined the level of business which is destined for a specific channel, you need to validate that the channel has the capacity and capability to handle the volumes at the price points and quality levels which will meet your growth objectives.

What will become apparent is that few channels are without constraints, and most are not capable of handling ever increasing volumes. When this is discovered during the planning cycle there is time to identify and test out alternatives.

What you do have to be careful with is channel conflict. This occurs when two different channels reach out to the same customer.

When that occurs, both channels can expend effort on gaining the business but only one can be successful. This problem is exasperated when the customer uses the resources of one channel, say a retail shop, to review the product but then goes to a cheaper channel, such as the internet, to buy it.

In some sense you end up competing with yourself to your disadvantage. However, multiple channels can work very successfully if they reach different customer segments with little or no overlap.

The advantage of a multi-channel strategy is that it gives you greater room to develop capacity for taking products to market, some channels being more open to growth than others.

In the end you have to find a balance between channel capacity, your own growth targets, and whether you have the internal capability and capacity to manage.

Tom McKaskill is a successful global serial entrepreneur, educator and author who is a world acknowledged authority on exit strategies and the former Richard Pratt Professor of Entrepreneurship, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, Melbourne, Australia.