Smart growth

By Barbara Spector

Earlier this year, Tyson Foods, a family-controlled, publicly traded company known for its chicken, pork and beef products, announced it would explore the sale of its Sara Lee frozen bakery business and other "non-protein" brands. Tyson also said it would acquire AdvancePierre Foods, a supplier of packaged meat sandwiches.

At about the same time, JAB Holding Co., which invests for Germany's Reimann family, announced that it planned to sell high-end shoe companies Jimmy Choo and Bally International. A few weeks prior, JAB had acquired Panera Bread Co.; it also owns Krispy Kreme Doughnuts and other food companies. The Reimanns decided that selling pricey shoes among all that food was a misstep.

Both these family enterprises rethought their holdings and concluded they needed to get on a smarter growth track. They both understood that while diversification is a good idea, a company must diversify in a way that leverages its strengths.

Most family businesses aspire to grow (although some would rather continue operating as a small venture focused on superior customer service). Whether it's achieved through acquisition or organically, growth must be well planned.

Is an independent board reviewing your plans? Independent directors who have helped other companies grow and/or have expertise in your industry can provide a "reality check" on your ambitious plans and can help you navigate pitfalls.

Are you anticipating the marketplace of the future? If you're planning to make a new widget (or acquire a widget company), have you considered whether customers will still want that widget in five years or whether strong competitors or copycats might develop widgets of their own?

Are you conducting market research, or relying on instinct? Is your plan based on systematic focus-group studies, or just a few conversations with the CEO's cronies or some favorite customers? Be aware of your blind spots.

Do you have the infrastructure to support your growth plans? Can your existing staff and facilities handle the growth? Will projects fall through the cracks as staffers take on new assignments? Have you budgeted enough to meet your future needs? Bear in mind that growth doesn't automatically result in economies of scale; you will initially have more expenses.

Have you weighed the pros and cons of your funding mechanism? Are you taking on investors who will push for short-term gains? If you plan to fund your growth through company profits, are your family shareholders on board with a reduction in their dividends?

Do you know when to stop? After a few new offerings that are big hits, it's tempting to press onward in the same direction. Make sure you haven't begun to compete with yourself, and that you're not producing more than the market will bear.

Does your prospective acquisition fit in with your company culture? Cultural fit is especially important in a family business. Do your due diligence to make sure that the integration will be smooth.

Like Tyson and JAB, you must regularly review your growth strategy and be prepared to make changes if you're not on the right track. The shoes might have been a good fit a few years ago, but now it could be time for a change.

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