High-Growth Finance Management for CPG Companies
In this discussion, Nick and Kevin sit down with Dr. James Richardson, founder of Premium Growth Solutions, to talk about high-growth companies, how they reach the high-growth status, common mistakes they’re prone to, and how they can better channel growth. Only about 2% of consumer brands fall into the high-growth category, but that doesn’t mean there aren’t lessons to be learned from the unique challenges that these elite companies face.
Find out just how complex managing a high-growth consumer brand can be, and gain insight from a respected advisor to CPG companies, Dr. James Richardson. Read on, and be sure to check out the video below as well.
Get to know what’s driving the growth
With a background in social sciences, Dr. James Richardson knows that it’s human behavior that pushes exponential growth. If your company is growing exponentially for over two years, that’s not because you’ve spent a lot on your Facebook marketing. It means people like your product and your brand!
Every CEO, regardless of industry or life stage, needs to be sensitive to what’s driving growth—who are the customers that have been making repeat purchases year after year? They’re in the minority of your consumer base, but they’re a driving force behind growth. We say this a lot, but it’s really true: the best CEOs know their market inside and out. Being able to create a loyal, niche customer base is a powerful thing, but it’s hard to accomplish.
If you are in this position or ever get there, know that you’re riding something special. This type of rapid growth demands a detailed and strategic playbook built out over 5-7 years.
Have you heard the term “growing to death”? It’s something that high-growth CPG companies must bear in mind, especially in the early stages of exponential growth. High growth rates can put a strain on processes, and if you’re in the CPG world, this will affect your supply chain and distributors as well.
Another problem that comes with the high-growth territory is the number of investors and agencies who will want a piece of the growth. High-growth CPG companies need to know which money, if any at all, they will accept from outside investors. Your job in this position is to reinvest your money while not becoming too risk averse. CEOs who have experienced this know that people will start coming out of the woodwork to tell them to spend $5million on this or that—and it’s easy to fall for because you can afford it.
When you’re in exponential growth territory, it’s critical to find that balance between reinvestment and risk taking. Develop discipline and know who you need to turn down.
Keep the end in mind
Clarity is a theme we talk about a lot at AmpliFi, and for good reason. The better you understand your business’s growth, the better you can chart out your strategic plan. The one thing you’ll want to determine is what your end goal is. Is your business about a big exit where you’ll cash out and leave? Do you want to build a long-lasting brand?
A big exit is a popular concept, and we wonder if that’s because it’s the only option new entrepreneurs are familiar with. Do founders have the support and knowledge to take other paths? In fairness, building out and executing a strategic plan for a high-growth business is complex. It’ll require a ton of planning, modeling, forecasting, tapping into outside perspectives and more.
If you’re a founder that isn’t looking to exit the business, you’ll want to move toward a capital allocator position. Removing yourself from day-to-day operation will allow you to get a higher-level view of how your business is working so you can make bigger-picture decisions that drive you toward your end goal.
Provide the data—no matter how much you have
Founders who can give proof as to why their product or service is needed have a much better shot at raising capital. When that’s backed up by historical financials and a solid team, the case is only made stronger. And while young companies may not have a ton of data, you should still come prepared to a pitch with any data you have so far, just to give your potential investors a glimpse of how your plan has performed so far. This will provide proof that you’re being thoughtful about tracking your metrics right from the start.
Reinvest and build up your dry powder
One of the biggest misses founders of high-growth CPG companies make is failing to reinvest profits. Once you start hitting exponential growth, that reinvested profit will give your business the stability it needs once it hits turbulence—which it will! Even worse is beefing up your own salary with the profits you’re bringing in.
Reserve a couple million to serve as dry powder for later. As a CPG company, you never know what the battle at the shelves will look like in the future. It can become expensive to compete with competitor brands and remain at the forefront of your target customers. A basic rule of personal finance is to set aside a healthy emergency fund—the concept is basically the same here. Prepare for a bad event, or be ready for a great opportunity. Either way, having funds set aside will only help you through high growth.
Build and manage your company for human beings
Our big takeaway for high-growth CPG management is to develop a patient, thoughtful mindset. The consumerism that’s baked into society will scream at you to spend your money, so the best thing you can do is be discerning with where your money goes, making sure it’s aligned with your strategic plan.
If you’re in this position now, or you’re curious about how you can manage your business more effectively, feel free to talk to the team at AmpliFi. Discover how our Modern Office of Finance can help you navigate the complexities of modern finance