The Challenges That Come With Rapid Sales Growth

I read with interest recently about two publicly traded businesses facing significant challenges. They both have one thing in common: their sales are growing.

Under Armour, the popular sportswear maker, has reported a quarterly loss of nearly $60 million despite an expectation that sales will grow this year by as much as 7 percent. The problem, according to the company’s CEO, is increased operating expenses across all areas of the business, in particular distribution (fuel prices) and wage costs. The company saw its share price drop 24%, the largest one-day drop in its 17-year history. The good news? Sales are growing.

Meanwhile, DraftKings reported a loss of $468 million for the period ending March 31, 2022. The good news? Sales are growing, up 34% for that same quarter. What’s going on here?

During a recent strategic planning session with a rapidly growing printing and marketing services/fulfillment company, I asked the group of senior leaders to identify what they saw as some of the natural, predictable consequences of rapid growth. Among the most significant responses were the impact on cash flow and the need to rationalize their client list going forward.

To be sure, rapid growth can put a strain on capital as the need to expand and ramp up quickly requires both liquidity and the capacity for investment. It can also strain internal resources, people and processes.

It may also provide a needed opportunity to take a hard look at your client list and your transaction costs. Just as rapid growth can change the nature of a company’s internal operation, it may also bring into sharper focus the need to examine your client list and determine where your most profitable and enduring relationships are made. Conversely, it can shine a brighter light on those customers who are better served in a different, less labor-intensive way, or by other providers.

The Key Account Accelerator process is an excellent tool for evaluating our best and our least desirable client relationships. While this exercise is worth doing as part as your annual planning process, it is especially important during times of rapid growth.

For more information, contact me at joe@ajstrategy.com.