Every direct selling company wants to grow fast, but not every company knows how to think ahead and prepare for the inevitable growing pains. Steve Hooper joins us on this first installment of a two-part episode to talk about the strategic planning you need to do to handle phases of growth and hyper growth. Steve and Kenny talk about how hyper growth affects your infrastructure, your operations, your organization, and your business partners. Specializing in hyper growth management, Steve has worked and consulted with countless companies and is now InfoTrax Systems’ Vice President of Product Management. Listen in for the important insights he’s gathered over the years.
Kenny: Hey, everybody. Kenny here. The episode you’re about to hear is about growth and hyper growth and my guest, Steve Hooper, and I went a little longer than we like to normally, so we’ve broken this up into a two-part episode. Here’s part one. Hello and welcome to the MLM.com podcast, I’m your host Kenny Rawlins, and in this episode, we are visiting with Steve Hooper who is the vice president of product development here at InfoTrax Systems did I get that wrong?
Steve: Product management.
Kenny: Product management! Vice president of product management. That’s horrible of me but, Steve, thanks for joining us.
Steve: No absolutely. I’m glad to be here.
Kenny: So, today we’re gonna be talking about growth, and particularly how to manage growth and how to plan for it. We’re gonna use a loose framework of going through a document that Steve provided called the ten commandments of growth. But first, Steve why don’t you give us a little bit of background on yourself within the MLM industry.
Steve: Sure. Thanks Kenny and, like I said, I appreciate the opportunity to visit. I started out in the industry when I was about 10 years old. My dad got involved with a direct sales company and they were doing home care products, home cleaning and I learned quickly that for every bottle I sold I could make fifty cents. So, I started door-to-door. So, at age ten, I recruited my first downline. I got my little brother to carry the tote bag and little did he know that I would make fifty cents and then I would give him five. So, I had a good profit margin.
Following that I stepped into the accounting and technology side—as things were really exploding there—and went to work for one of the large public accounting firms (a regional firm). And then a good friend of mine invited me to head up IT & Finance for a startup company. And that company grew within the first couple years from startup. We did 10 million our first year, 125 our second year, 200 our third year and that’s when I really started to see what goes on within this industry and how things can grow and how they can grow exponentially. I just attached to that and it developed a real love and passion for our whole direct selling/network marketing industry and have spent the rest of my career just working with direct sales companies and now having come in-house with InfoTrax Systems, heading up product management.
Kenny: That’s perfect. I’ve worked a long time with you and your expertise and insights have always been very helpful to me. I think this will be a good topic to discuss especially with your perspective of having been with a number of companies that have experienced that hyper growth. One of the things that you mentioned as we were talking before we started recording was that hyper growth or extreme growth can be as deadly to a company as no growth at all. I think that’s something that people don’t realize. The first commandment that we have here is “have a vision in set a big bold goal.” Why do you think that’s important? And how does that set somebody up so that they’re planning for that growth?
Steve: Let me lead into that first vision for just a minute—or that first commandment that we talked about having a vision—because when we talk about growth the one thing that I always like to think is, we’re always talking about the future. We sit back and the future is something that we study, we make predictions about, we build models, we prognosticate—to use I think one of your favorite words—we ruminate on it. There are still going to be surprises but it’s something that’s very important to do. I think Mark Twain said it best when he said, “I’m very interested in the future because I plan to spend the rest of my time in it.” So, we have to talk about the future.
And now to put that in context where we talk about the future and then we overlay growth on top of that future is something that we really need to be aware of. There are companies that I’ve worked with that you could sit down and they say “we’re gonna grow.” And I can say “let’s look at what you’ve done for the last year, the last five years.” And maybe five years is better because you can take that five year history and you can build a model and say “I can fairly well predict what’s going to happen in the next five years unless you make changes to your business model, or to your strategy, or your focus, or, in this case, unless you change your focus and your vision and really make this huge bold bodacious goal and say here’s what we’re going to do. So why don’t we why don’t we touch that vision for just a minute. I’ll give you an example.
I met with the owners of a company and they were just a start up—a couple months old. They were already doing well, doing a few hundred thousand in business. And they sat there and they’re like, “Steve come here we want to show you some space we’re getting ready to rent.” I loved their vision. They said, “within two years we’re going to be a hundred-million-dollar-a-year company. That was a big goal, “we’re going from a company that’s doing a couple million dollars to a hundred million dollars.” To say, “we’re gonna do it in two years and we’re getting ready to sign the lease on two thousand square feet.” And my response… I laughed. And they kind of looked at me and you could tell they weren’t happy with it. I said, “please don’t take this wrong, but if you’re gonna be 100-million-dollar company, let’s break that down. That’s eight point three million a month.” I took them down, said, “here’s how many orders per day, how many transactions we’re going to be doing on a daily basis in order to support that and the team that we need. Do you think we can do this out of that 2,000 square feet?” And they’re like, “well, no.” I said, “okay. This is not a personal attack,” but I needed them to expand their vision. They had a big sales vision and a growth vision, but they didn’t necessarily understand the operational side of what it would take to make that vision or that dream come true.
Kenny: I think you hit on a couple of good points that I’d like to pull out of that. First of all, part of having a big bold goal is then saying “okay, we want to make it to a hundred million in two years,” and then doing what you talked about which is saying “okay, that’s how much per month, that’s how much per day on average. What does it take to get us there? And what does it take to support that?” But then I’d also like to get your thoughts on… how do you then, if you’re that person in that position… a lot of people talk about one of the keys to success is being like inflatable furniture—that you can expand and contract as needed as you’re on that trajectory up. You don’t want to get into a ton of fixed expenses that are bigger than you need. So, how would you suggest people walk that line of saying “okay well we need maybe a hundred thousand square feet but we don’t need it yet”?
Steve: Now we get into some very strategic thinking. This is where we sit down and we have to make a plan because we can build a model that says to do one hundred million in business based on an average order. I like to put things in terms of numbers of transactions. So, a hundred million dollars. We break it down into how many transactions need to occur on a daily basis in order to make that happen. Now we build the models around that and those models are—just like you say—those models are human capital. How many people do we need to support a transaction all the way through from a sales and marketing team, field development team that’s supporting them, training programs, events? And we work all the way through the operational side of the business. How many different touches really occur when we think about a transaction associated with a company? We have to learn how to scale and then how to choose the right business partners that can scale with us. The interesting thing is, we think about growth and we say “wow we’re gonna be a hundred million dollars,” but that also means our employees are going to be employees of a hundred-million-dollar company. Our entire supply chain has to grow to support a hundred-million-dollar company. All of our technology partners throughout the entire organization. Everyone has to grow with you. So, it’s not just “we’re growing.” So, that strategic planning becomes key. First of all, it’s the big bodacious vision, but now there’s got to be a strategic plan that supports that vision and it’s got to be a realistic plan.
I sat with one group that had a great year. We sat down in a strategic planning meeting we were laying out the next year and we just said “okay so what’s the sales forecast for next year?” And they put a number up there that was 3x. So, they’d just had a record year and put up a 3x number. Again, that’s a great goal but how are we gonna get there? It was not a realistic goal and they had not defined a plan that would change based on what we’d just done the past year to enable that happen. So, we’re gonna plan strategically. We’re gonna be a realistic throughout that time we’re gonna set milestones. What we’re gonna be looking for is that company starts and we’re not going to go rent a hundred thousand square feet. We’re gonna go get, modestly, what’s within a framework. But as we start to see triggers occur we can project out what’s going to happen over the next three months, six months, and twelve months. As we see and achieve those milestones then we go through and say “okay now here’s the next step” because we know what our lead time is on getting space, talent, everything else that we need in place.
Kenny: That really stands out as one of the keys. You’ve got to have those triggers that say “okay we can’t get behind. We can’t go rent in the hundred thousand square feet today. We can’t go lease that today. But we also can’t get behind. If we’re gonna do 10,000 square feet today, we’ve got to know how much of a lead time we need to do the next thirty thousand and we’ve got to trigger that based on that activity. I think what you hit on with that story about the company having the 3x goal… a lot of people hear this and say “oh I’ve got to have a bold goal” but then they don’t do the backfilling of saying “a bold goal is fine as long as you have a plan to get you there.” If we’re coming off this record year and nothing about it projects being 3x at the end of the year, what is it that’s going to be the catalyst for that? If we don’t have it what would we project out to be based on our current growth? You get people who say “You’re crushing my dreams,” or “you’re having a limited mindset.” It’s not bad to be bold but it’s also not bad to be realistic and you’ve got to plan.
One of the things that bites people all the time is “I’m gonna lose 50 pounds this year” or “I’m gonna lose 25 pounds this year.” Well you’ve got to break that down into “Okay, how much are you losing the first month? How much are you losing the first week? What are you going to change about your current behavior that’s going to allow that to happen?” The goal of losing X number of pounds in a year is not inherently bad. What’s bad is when people throw that out there and then don’t do any of the work to say “how am I gonna get from where I’m at to where I want to be?”
Steve: I completely agree. If you just go through that again… I mean we’ve touched on the fact that there’s a plan and that plan’s got to be strategic in nature. It’s not just a number. There’s got to be a plan of how we’re going to do that. It has to be realistic, which means it’s measurable, it’s attainable, and the activities that are gonna drive and help us get there. There are then milestones that, as we achieve those milestones, those become triggers for other activities. We’ve really got to make sure that there’s a continuous evaluation and assessment of how we’re doing. With those in place you can look and you can grow. It won’t always be pretty. I mean that’s a thing. Growth… every company wants growth. Growth is not always pretty. Growth can be very difficult because again the entire organization all the way through a field organization, all the way through the supply chain… everyone is growing along with you.
Kenny: I think that hit on two other of the commandments. We’ll go through these out of order a little bit. That made me think of number four, which is “build the right infrastructure the first time.” And number five, “always sort out the money.” So, I’m curious when you’re planning for this growth and when you’re trying to accommodate it, how do you make sure that you have the right infrastructure the first time? If you discover along the way that “hey this infrastructure isn’t right” what would you advise people on… I mean we see this in the software industry all the time—people having to change software providers midstream because their software provider can’t grow with them. How do you make sure that you’ve got the right infrastructure the first time?
Steve: I think that goes down to having the right partnerships. If we use software as an example, it is easy sometimes to go with the low-cost provider. I’m a start-up. I have limited capital. At most companies, the focus is on the marketing and the sales—the customer side of the business. I mean that’s just a little bit sweeter than the operational, the transactional side of the business. All too often, I’ve seen a greater amount of the attention—and even the resources can be—put on the front-end and less attention on the back-end. So, it’s like “any software provider will work. Were ok down here.” That decision alone is key, whether it’s software or another vendor relationship, or a manufacturer. You come down in and if they’re not in a position to help you grow or if your model—let’s say for example your model is we’re going to open up several countries within the first two years—well if they’ve never done business internationally… and it’s one thing to do business international like “we transact with Canada” or “we transact with another single market.” It’s another to say “we really have a global footprint and we understand the ins and outs of taxation, currency, all of the things associated with that.” So, I’d say that that decision on who your vendor partners are becomes paramount. You’ve got to take the time right up front because these are the people that you’re going to spend your time with.
One company that I started with, we had a couple of decisions we made really well. We were on a software platform. They couldn’t grow with us. We had to transition to another one. With that transition, it gave us the freedom that we needed. It gave us an operational context. There still are controls but there are things that we could do that we could not have done—we could not have grown—without them. On the other hand, we had a manufacturing partner at that time. We were growing at thirty percent a month, which any company would say “we love it!” Well we were coming up on a Chinese New Year. We didn’t know that they were going to close their factories for two weeks. They closed their factories for two weeks. Guess what happened to us? Our sales grew at thirty percent. So now we’ve spent the next two months just playing catch-up from a production side of the business. It wasn’t because they were bad business partners. We didn’t understand everything about their business model and, given the growth rate, we really didn’t forecast well and project to them what our growth path was.
So, I’d really say it’s going to come down that vendor partnerships are key, the systems that you put in place to support these relationships, and there can’t be any squirrels in the closet here. This is a business. It’s got to be run in that kind of fashion. I’ve gone into computer rooms and I’ve seen duct tape holding together pieces of equipment and things. And I get that but at the same time you’ve got people that are dependent upon you. We sell products, but we market you know dreams an opportunity and we’re supplying jobs to people and creating opportunities for home-based businesses. So, we’ve got to approach that in a very, again, strategic type fashion.
Kenny: To piggyback off of that, what that means is you gotta be doing your homework about who you’re partnering with. And you also need to be candid with your partners of saying “here are our strategic goals and objectives. How are you going to help us accomplish those?”
Steve: A lot of times we put the company—and again I speak from the company side because I’ve spent more time there—the company will put the onus on the provider and say “it’s your responsibility” when really, it’s mine. It’s mine to do just what you said. I’ve got to do my due diligence. I’ve got to say, “here are my requirements—what we need to do.” I’ve got to go through and follow up. I want a list of referenceable clients—good and bad. I want to know who I’m working with. Not everybody is going to give you a five-star and I understand that, but I want to have conversations with all of those as to what the experience was. Then the client has to have the responsibility to bring the vendor to the table and say “here’s what we’re doing.”
I mean we had one company, we grew, we did 10 million our first-year. Started growing in the second year. Started hitting about four or five million a month. The bank came in and said “we’re cutting off credit card processing to you,” because their risk assessment team was worried we were growing too fast. we had not done a good enough job of going to the bank and giving them what our growth was what we expected to happen. we went from 10 million to 125 million. after we hit 125 million, we did find other processors and banks we could work with. They came back to us and said “we’re here. We can help you now.” I was like, “shame on us for not communicating but when we did bring you to the table and showed you what we were doing, you chose to withdraw.” It was only after they saw we were successful, they were willing to come back to the table. so I think what you said is key there. It’s the responsibility of the company to go sit down and form the right alliances and then to communicate regularly. I’ve worked where we have monthly, quarterly, or even annual summits and bring all our vendors to the table and say “here are the markets. Here’s what our growth strategy is for this year.” And they see what they’re a part of.
Kenny: To that point, we just had one of our clients do that just barely where they had an internal strategic summit and tacked on to the very end of that was bringing in all of their vendors and saying “here’s what the next year looks like for us. Here’s what we’re planning for. We need your guys’s support in that. If there are things that we need to know about, now’s the time.” First of all, now we feel included in that. We feel like we’re a partner in their success. And we can bring stuff to their attention and say “okay these are goals that are achievable, but as a partnership we need to start planning it for X Y & Z.” It does make it so that everyone’s on the same page and there can be a better partnership.
Steve: For example, one thing that can happen here is building that right infrastructure. As you grow, as I said, so does your supply chain. We had one company that was doing our manufacturing and given our growth they had to go out and purchase a new line to be able to double their ability to meet our needs. The bank came in and refused to fund that new line because we as a client now represented more than half of all of their sales. The bank saw that as a risk and it’s understandable. I mean that’s a valid concern. In that case, by communicating, working with the company, we actually went in and purchased that line and did it ourselves. we invested in the supply chain to be able to handle our growth. sometimes there are things like that that you need to do because traditional business is going to look at hyper growth and, again, say “there is risk here” and there is. I’ve experienced the downside as well as the upside of some of these growth companies. So, this now comes into clear communication especially in the financing, the merchant processing areas—those are key—supply chain becomes key, legal counsel becomes key, international… as we start to make these steps, these all play in.
Kenny: Yeah and I think that does all go to building the right infrastructure. Now I did want to get just a couple of thoughts on what do you do if you’re in this growth phase and find out that a part of your infrastructure is wrong? I mean, how would you advise people on handling that?
Steve: Well one thing that I’ve seen is, every company loves growth. We always say there can never be too much growth, too much publicity, too much anything. That’s why I said earlier, growth can be ugly because growth is going to expose where there are seams, or flaws, or things that we haven’t really had the time or opportunity to think through. One group that I was working with, we were doubling in size every 45 days. To think that you’re going to make every decision correct is just silly. The COO sat me down—I’m a young professional trying to figure it out, working those 14 hour days, and trying to do everything I can—and he came in and said “allright, Steve, here’s what I need you to do. Just make the decision with the best information that you have.” And he goes, “half the time you could be wrong. I’m okay with that. But what I can’t have you do is slowing down the process. You have to be able to make decisions. And when we find a decision that we’ve made incorrectly, we’ve got to go back and then we’ll assess where we are, and we will correct it then.”
Growth is a pretty easy time actually to make changes. I mean it’s kind of counterintuitive, but as you’re growing, it’s not pretty. People—while there’s growth—they expect and they’re not afraid when little things hit. It’s when you plateau and you start experiencing some disruptions of service or other things that people start to get skittish. They start throwing those safety nets out, or thinking “multiple streams of income. I’ve got to secure my way.” So as soon as you identify it, you’ve got to deal with it right then and there. You can’t wait. Six months from now you could be twice the size again and all you’ve done is compound that issue. So, it has to be addressed as quickly and as soon as it’s identified.
Kenny: Perfect yeah and I think that is helpful. Like you say, indecision can be as bad or worse than making the wrong decision because it can impede you moving forward and figuring that stuff out. So, I mentioned that I wanted to talk about commandment number five, “always sort out the money.” what do you mean by that and how does that play into having that big vision and also building the right infrastructure the first time?
Steve: Sorting out the money is key because there’s a financial awareness that has to be associated with every activity. For example, take a company that’s growing and if they’re not setting aside monies to pay commissions, sales tax, and other obligations that they have… If they’re growing and say “we’ll just take it out of next month’s growth.” Well you can get into a negative cashflow structure real quickly. So, that’s one example. Another is, as you’re growing, sometimes you’re not paying attention to your cost structure—product costs, for example. You might be willing to give up some percentage, some margin on a product, thinking “we’ll make up for it in volume.” Well if all of a sudden the buying activity shifts towards that product, what you’ve just done is handed away a couple points that are going right off the bottom line or your ability to reinvest in the company. Companies have to control costs. We sit right here and our goal is we’re not taking everything we’re doing and investing it in new product lines, new other things. We’ve got to ensure that we’re running efficiently we’re systematizing the things that we can control, trying to drive down or achieve whatever cost efficiencies that we can.
The CEO is our visionary he puts it out there in front of us. It’s our responsibility then to ensure that everyone else really is focused on profits. We’ve got to make sure that we are in line as to where we ought to be on a cost of goods side, on a commission standpoint. Sometimes we’re willing to just throw bodies at an issue and try and resolve it. You know we’ve got to be a lot more strategic than that. Companies have to be in charge of growth. You can’t just let it happen. You’ve got to be in charge of it. The chaos is going to be there. You can’t let it overwhelm you. You have to find ways to transition smoothly and successfully within that chaos. That’s what I’ve experienced; chaos will be there. But as a management team it’s our responsibility to look at that chaos. The leadership is going to paint the future. They’re gonna say “here’s the future.” Our responsibility is to find the way to get there and to do so in an a cost-efficient and a process-efficient manner.
Kenny: One of the things that I took out of that is, I’ve seen it myself where you can get so overwhelmed with the growth and so overwhelmed with everything that comes with that growth, that you start to think okay well we’ll just deal with the money part later. The growth itself warrants being a little bit looser with the money, and it might warrant expenditures, but you have to understand the context in which those expenditures are made. I know you’ve talked to me about being with a company and over the course of two years going through three phone systems. Those costs may have made sense—you know that you’re going to outgrow some of the stuff you’re buying—but if you’re doing it without the awareness of where you’re at financially that’s where it becomes dangerous.
Steve: Another example. Sorting out the money isn’t always about profitability, it’s about investing in the business. One of the companies I was with, we identified that we were on a bad section of the power grid. We were able to see disruptions in our power and so having UPS’s wasn’t enough. We came to the decision that we needed to put in our own power generator that had immediate failover in the event that the grid took a hit. This was in the southwest desert. There was a cost associated with doing that. We went in and presented to the owners of the company and there was kind of that long pause and deep breath. “Wow this is a big number.” But we showed them what the downside was if we didn’t do that and we made that decision. We invested in that infrastructure. It was only nine months later that we had an event occur where we ran on our generator for a month. That’s why I say, when I talk about sorting out the money, it’s making sure that we’re allocating it to the right places within the organization. We could be very profitable and it could be and very easy to say “let’s throw a couple more points into the compensation plan.” But once you put them in there, to think that you’re gonna get them back… no it’s “here’s our compensation plan this is what we live on. This is foundational. this is our true north. This is what we’re going to pay in the plan, and we’ll reallocate within this, as we need to. This is going to be our cost structure for products. We’re going to live with this for operations.” That’s where we sort out the money and we make those decisions upfront so that when things present themselves to us, the decision’s already been made. We sit here and go “does it line up with our vision as a company and what our true north is or does it not.”
Kenny: I think that that’s an excellent point.
That’s it for part one of our episode on hyper growth. I want to thank Steve Hooper for his time and also Jana Bangerter and Adam Holdaway for production support. Join us again next time!