Your new product is a runaway hit but what happens next? How do you turn a quick success into sustained growth? We list the priorities for managers... from controlling cashflow to overhauling IT
It sounds like the ultimate business dream come true: a company launches a product or service hoping for higher revenues and suddenly finds itself with a runaway success on its hands. It happened for London-based Quercus, the small, independent book publisher that bought the rights to an obscure Swedish crime novel, only to see Stieg Larsson's Millennium Trilogy become an international literary phenomenon.
The same thing occurred at Chillingo, the tiny Macclesfield-based mobile games publisher that bought the rights to distribute the Angry Birds game from Finnish creator Rovio and steered it from obscurity to a worldwide hit. Last October, Chillingo was snapped up by US gaming giant Electronic Arts for $20m (£12m).
Naim, a Salisbury-based manufacturer of high-end audio equipment has also experienced unexpected success. The 2009 launch of its all-in-one NaimUniti system for the general consumer market marked a distinct change in direction for the company, which has specialised in providing modular systems for hi-fi enthusiasts since the late 1960s.
At the time of the launch, managing director Paul Stephenson wasn't sure how this change of approach would be sustained, especially against a backdrop of global recession. "It seemed like a good time to try to widen our audience, by bringing Naim's technology and reputation for quality to a more mass-market audience, but at the same time we were nervous that this attempt might be perceived as sacrilege by our core market," he explains.
Stephenson needn't have worried: despite costing £2,000 per system, NaimUniti, which features a dock for the user's iPod (as well as iPhone and iPad) and connects wirelessly to home computers, is hugely popular. In the year following the system's release, the company scooped a Product of the Year award from What Hi-Fi? magazine and sales of NaimUniti exceeded forecasts by 300 per cent.
Managed badly, unexpected growth of this kind can be dangerous for a business, says Chris Stratton, chairman of the business strategy team at accountancy firm MacIntyre Hudson. "If the management team don't know how to handle a sudden lift-off, it can kill off a company outright," he warns.
The key priorities in this situation are clear, says Stratton, but demand considerable business skill: improving cashflow; boosting manufacturing distribution and fulfilment; growing the workforce; and maintaining customer-service levels. "It takes a cool head and, in the case of many small and medium-sized companies, a good deal of outside help and expertise to ride that wave," he says.
Among all these pressures, cashflow should be the top concern, but it is often left behind in the flurry of excitement that follows a new product's success, says Stratton. "You've got components to buy and people to pay, so you can't afford to ignore the impact of cashflow or you'll end up with a disaster on your hands."
If a company doesn't have financial modelling skills in-house, it needs to source them quickly. When orders don't translate into income for several months, the ability to access credit will be a key factor in a firm's ability to fulfil demand. While bank lending to business may still be anaemic, robust forecasting can go a long way to securing funding.
Several options are available for dealing with raised cashflow in the short term, says Lindsey Rix, a regional managing director at Santander Corporate Banking. Invoiced financing, for example, offers a facility against a company's debtor book, giving immediate access to capital based on invoices as and when they are raised. Supplier financing is more commonly available elsewhere in Europe but is now offered by Santander in the UK. This choice, Rix explains, "covers the other half of the working capital cycle" by enabling a company to make earlier payments to suppliers, typically at a lower rate.
In the case of more sustained growth, longer-term options will need to be explored, says Rix, such as mortgages for new business premises, or asset finance for new plant machinery and IT equipment. "For your bank, saying yes to requests is going to be about understanding your business's strategy, based on proper forecasting and a realistic business plan," she says. "No bank wants its corporate clients to stretch themselves too thin, so the bank manager will be looking to see solid contingency plans that take into account various downside scenarios, as well as the upside, and balance that optimism with a more prudent view." Above all, adds Rix, they don't want to hear about sudden surprises, so companies facing unexpected growth need a close working relationship and regular meetings with the bank.
For many companies, manufacturing and distribution will also need to be handled carefully. In the case of Naim, some of the components used in the Uniti product, such as microprocessors, had long lead times of between six months and a year, so the company took to exploring the grey market for alternative suppliers. In many cases, says Stephenson, this was as simple as Googling a part's code number to find a distributor or components broker.
Naim also restructured manufacturing processes, establishing a closed-cell production line, where employees worked exclusively on the product, and increasing batch sizes from around 10 units to 25, or even 50 in periods of high demand. Advice from manufacturers' organisation EEF, says Stephenson, has been instrumental in many of the changes that the company has made over the years in order to become a "leaner" outfit.
When it comes to staffing, both in terms of manufacturing and maintaining customer-service levels, the best strategy is to look at the existing workforce and identify who is ready and able to take on new responsibilities, says Stratton.
Naim managed to cover its needs in the first year of growth by offering overtime and adding shifts at weekends. "At a time when other companies were laying people off, our staff were only too happy to be as busy as hell," Stephenson jokes.
Sudden growth may also mean that computing infrastructure must be improved. This is where so-called cloud technologies come into their own, says Dominic Monkhouse, managing director at managed hosting company Peer 1. "Cloud computing offers companies the opportunity to pay for hosted computing systems on a subscription basis out of operational expenditure, rather than buying new infrastructure out of capital expenditure and maintaining it in-house, with all the cost and complexity that this entails," he says.
Today's hosting companies, explains Monkhouse, have the skills and technologies in-house to quickly boost the infrastructure underpinning an organisation's website, for example, and can help with building links to internal systems such as inventory management.
If a company takes on new sales or customer-service staff, cloud applications from companies such as Salesforce.com or SugarCRM are ideal. "You can buy an awful lot of cloud technology for the cost of employing an in-house IT manager," says Monkhouse. "My advice to businesses that are facing sudden growth would be this: Don't even consider deploying it on your own premises."
At Naim, the success story continues. In the company's most recent financial year, Uniti shipments have matched the volume distributed in the system's first year of production—and now account for 10 per cent of revenues. Naim has attracted strong interest from export markets, particularly Germany, Japan and North America but increasingly from China, too.
It's been a huge challenge, but an exhilarating one, says Stephenson. "We've still had enormous pressures on our business—they've just been very different from those that we were originally anticipating as the recession took hold."
