long-term financial health and the
ability to fund future growth,” he said.
“The feeling is that ‘cash is king,’ and a
healthy cash flow builds the company’s
long-term enterprise value. I cannot
over-estimate the importance of high
gross margins and expense control to
the health of the company and its potential value to investors.”
One leading organic brand in-
creased its gross margin by 6 points,
from 36 percent to 42 percent over a
three-year period. To do this, they
broke down the cost profile of each
product group into its main components: ingredients, packaging, co-pack
fees, distribution expenses, etc., then
assigned specific targets for improvement over the three-year horizon. The
resulting increase in gross profit dramatically improved the company’s operating income, from a negative $2.4
million to a positive $1.7 million, a
turnaround of over $4 million.
Plan Carefully to Avoid
3.Co stly Mistakes. Lack of
planning leads to mistakes.
In good times, these mistakes
are sometimes “smoothed over” by the
upward rush, but in tough times, there
is no margin for error. “Planning has
never been more critical than now in
these uncertain times,” Sebek said.
“Not only must the operating plan be
carefully thought out, but there also
needs to be a very sober ‘down-side’
scenario that can be effectively implemented if the company’s financial position deteriorates. This downside plan
needs buy-in, externally and internally,
to assure partners and management
that the company has adequately prepared itself for a possible economi-cally-driven shift in performance.”
While speed is often a competitive
advantage in organic, it’s imperative to
research all key decisions, even at the
risk of slowing down the system. Leaders must discipline themselves and
their team to do as good carpenters
do: “measure twice—cut once.”
For one organic company, the solution was to evolve from an improvisational,
“shoot- from-the-hip” leadership style to a more disciplined process based on
strategic planning. Key to the company’s success was to make both the process
and the resulting plan a living, usable guide to management, rather than an abstract, “nice-but-not-actionable” piece that would gather dust. To make the plan
tangible, it was kept short in length; the time period included immediate, action-oriented steps for the first 12 months of the plan, and managers were given specific tasks and timelines. The final key was the ongoing work of the CEO to keep
the leadership team on task with the follow-ups and timetables.
