The term “mature company” might bring up images of a stale, archaic or out-of-date business. But in reality, a business in the Maturity Stage of the Business Owner Lifecycle is a successful organization with a well-known product or service, loyal customers and steady growth. So, for businesses that have grown into this season of stability, what does success really look like?
In this episode of The Wrap, our hosts discuss the characteristics and opportunities of established businesses with special guest Stephen Schaaf, CPA, a Member of Warren Averett and leader of the firm’s Manufacturing & Distribution Practice Group.
In this episode, you’ll hear:
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(00:00:00) Commentators: You’re listening to The Wrap, a Warren Averett podcast for business leaders, designed to help you access vital business information and trends when you need it. So, you can listen, learn and then get on with your day. Now, let’s get down to business.
(00:00:17) Paul Perry: Hello and welcome to the next episode of The Wrap podcast. My name is Paul Perry. Happy to be here with you. I’m joined today by my co-host from the Pensacola office, Cyndi Warren. Glad to have you with us today.
(00:00:29) Cyndi Warren: Happy to be here.
(00:00:30) Paul Perry: To date, this is episode 72. We’re going to be talking about the maturity or established stage of the life cycle for a business. We just got done and wrapped up—no pun intended—episode 71, as it relates to the growth stage. Today, we’re talking maturity. And who do we have with us today as a guest?
(00:00:47) Cyndi Warren: Paul, today, we have one of our members in our Birmingham office, Stephen Schaaf. Stephen leads our manufacturing group for the firm, and he has a great deal of experience with businesses in the maturity phase. So, Stephen, do you want to introduce yourself and give us a little bit of background on your experience with businesses in this space?
(00:01:08) Stephen Schaaf: As you mentioned, I’m Stephen Schaaf, a Member here at Warren Averett, and I do lead our Manufacturing and Distribution Group. I’ve been here with the firm for almost 31 years, and during that time period, I’ve seen a lot of different stages of companies and have had the opportunity to work with quite a few that are in what you would call the maturity stage.
(00:01:27) Paul Perry: Let’s just jump right into it. Stephen, describe the maturity phase as it relates to the business lifecycle. I’m sure there are some defining characteristics or attributes of a company in this phase. What are we looking for when we see a company and say, “Oh, that’s a mature or established company?”
(00:01:45) Stephen Schaaf: A mature company. It doesn’t really sound sexy. It paints a picture of a slow-aging company—maybe lacking in the use of technology—but that doesn’t have to be the case. A mature stage means that you’re operating in an established industry with a well-known product and consistent, loyal customers. You typically have slow, steady growth with some competition, but the growth is slower because the demand you have is typically in the form of a replacement or repeat order or customer. So, you’re not really getting new buyers or new customers.
(00:02:21) Paul Perry: So, I’m sure there are other attributes. Are these types of companies innovating? Is that still happening? When you talk about established, what does it look like from an innovation perspective?
(00:02:35) Stephen Schaaf: They definitely do need to keep innovating. In fact, I think that’s the key to being successful when you’re in this maturity stage, because you really need to focus more on stability than growth and expansion. You need to focus on cost management, as well as cost controls and operating efficiencies, but you can’t forget about innovating either because you may still be producing the same type of product or service. It’s a mature item, but there are new ways to do it, and you’ve got to keep looking for those innovative ways to stay competitive.
(00:03:07) Cyndi Warren: Yeah. We spent some time in the first two episodes of this series talking about how strategies differ in the startup phase. Then, how they differ in the growth phase. You just mentioned—to some extent—some of those strategies, but are there other strategies that business owners or management should be focusing on in this maturity phase?
(00:03:31) Stephen Schaaf: You need to continuously find ways to cut costs or become more efficient in your processes. You can fine-tune your existing workflows, find or utilize new technology and stay innovative. Back in the growth stage, you were probably more concerned about expansion and getting enough production to meet your demand. You may not have set things up the most efficient way as you were trying to grow. A mature company needs to make sure they’re operating as efficiently as possible.
(00:03:58) Paul Perry: I think efficiency and processes, Stephen, are obviously important strategies, as you’ve talked about. What do the KPIs look like in this mature stage, this established stage? I’m sure there’s history that you can use that you maybe couldn’t use in others, but what are those KPIs you’re looking for?
(00:04:15) Stephen Schaaf: A mature company wants to focus on efficiency metrics that measure how well a business or process is performing in terms of productivity, quality and profitability. I think you touched on one benefit for a mature company, which is that the company has a long history of data that we can benchmark against our current activity. Some of those productivity KPIs that are going to measure our efficiency in production could be the employee productivity rate, which tells us how much we generate by each employee over a specific period.
We could also look at revenue per employee. Obviously, we would want our output to be increasing per employee. One way to achieve this is by staying innovative and using technology. A quality KPI example—which again, we’re wanting to ensure that as a mature stage with our existing customers that we are maintaining our quality—could be monitoring our scrap waste levels, which tell us the percentage of materials that we send into production that never come out as part of our finished goods.
We also want to track our cost per quality, summarizing the costs for internal failures, and the time we spent reworking and reinspecting products. This is where we can gain efficiencies to compete in such a mature market. And then profitability, besides just tracking your gross margin, mature companies really need to focus on their operating expense ratio and their overhead ratio. These two don’t always get the attention they should. For a mature company, these two metrics can help identify negative trends and where we may have some cost creep in our products.
(00:05:55) Paul Perry: It sounds like not just manufacturing and distributing now, but these companies are data companies, right? You’ve got to have really good support from that data perspective to be able to look at the data and figure out what it’s saying to help you move forward. That’s almost every company now, right?
(00:06:13) Stephen Schaaf: Yes. And again, especially in a mature stage, you have a lot of data to use. So absolutely.
(00:06:20) Cyndi Warren: Stephen, you mentioned the concept of “Can’t always just keep doing things the way that you’ve always done it.” A lot of people have that idea that, “Hey, if it’s not broken, why are we trying to fix it?” But there does have to be some balance between keeping your successful legacy operations going and focusing on innovation. How do businesses and their leadership really balance that?
(00:06:50) Stephen Schaaf: I think it’s by staying innovative. Coke doesn’t need to change the recipe for their product, but they certainly have changed the way they manufacture or distribute it over the last few years. You don’t want to mess with what’s made your product successful. You just need to focus on the processes more when you’re a mature company to ensure that you’re doing it the most efficient way and using new technology to still generate that profit in return.
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(00:07:30) Paul Perry: So, Stephen, we’ve talked a lot about how the business changes in this stage of a business life cycle. I’m sure the leaders have to change to some degree, right? There has to be some evolution during this stage of a business from a leader’s perspective. What does that look like? What does succession planning look like at this point in the business?
(00:07:52) Stephen Schaaf: We’ve seen a lot of mature companies maintain their success by having leaders who are more people-focused. You hear the phrase of working on the business instead of working in the business. They need to become more involved with their team to gain efficiencies. Because again, you have a good product in a mature market that has a demand for it. You have to work hard within your four walls to gain those efficiencies.
We’ve had several clients conduct business process reviews, documenting each step of a process, eliminating unnecessary steps or replacing manual steps with technology and automation. This doesn’t just apply to a manufacturing or distribution process. It can also apply to any administrative process. Think of how many things can get antiquated in an HR department that slow things down. So, it’s not just the floor shop of a manufacturer; it’s processes as well. We’ve touched on this but continue to evaluate and embrace new technology. Just because you have a stable product in the market doesn’t mean you can’t benefit from technology.
(00:08:57) Paul Perry: I imagine there are a lot of companies in the startup phase, which we’ve heard about from Yogesh, and the growth phase, from Will, where all they’re trying to do is grow. All they’re trying to do is maintain or grow revenue, and that’s really their focus. The house gets left behind. I’ve always said accounting and IT are always the last groups to get overhauled once a company gets to that established stage. So that’s what you’re talking about there, right?
(00:09:23) Stephen Schaaf: Yes. Most people are paperless now, but you think back to 10, 12 or 15 years ago when people were first going paperless. We had some large mature companies that saved hundreds of thousands of dollars in their accounting department. You think about how much revenue they had to generate to save a couple of hundred thousand on their bottom line—that can have a big impact.
(00:09:45) Paul Perry: And now today we’re talking AI. Everybody wants to talk AI. I’m sure artificial intelligence is just that next paperless innovation that organizations in this industry are probably going to be faced with. Would you agree?
(00:09:59) Stephen Schaaf: Absolutely. And it’s a powerful tool that people need to figure out how to use. I think a lot of us are still figuring that out.
(00:10:05) Cyndi Warren: Let’s talk about the owners or the entrepreneurs who started these businesses. In the startup phase and maybe in the growth phase, they’re very focused on the business. Now they’ve built a successful business and it’s thriving. How does their focus from an individual standpoint and their individual goals, and preserving maybe the wealth that they have built, change?
(00:10:34) Stephen Schaaf: I think it’s hard for entrepreneurs to ever think that their business will end or their tenure with their business will end, but it’s like death and taxes. It’s going to happen at some point. Entrepreneurs and business owners need to be thinking about the next leaders who are going to be those innovators within their company and start developing those people. Again, back to that earlier comment about focusing on the people, you really need to build that team below you. Will it be another generation within the family, or will it be best to bring in someone outside the family to be in management? Dealing with those people again. Another item that sometimes gets neglected a little bit—or it becomes more of a routine with a mature company—is developing the budget and projections for the future.
A forecast is still very important for a mature company. There are a lot of assumptions that are made when you’re at the startup phase, but as a mature company, you can prepare pretty well-educated forecasts that will better reflect reality and help the company adjust to market challenges. Cyndi, you mentioned something about the transfer of wealth and protecting that. That’s something we deal with a lot with privately held companies here at Warren Averett. It’s something that’s very important to us: helping to sustain and protect this wealth that you build up. A lot of mature companies are at a point where they are generating some cash, and they don’t need all of it to come back into the business, because it’s a stable business. So, we see if the owners can take out some of that money from their business, diversify their personal wealth and not have it all concentrated in one business. Again, we don’t want them to take money out to the detriment of the company, but a lot of times you can see that in a mature company, there is the opportunity to distribute some funds and diversify the family’s net worth.
(00:12:23) Paul Perry: Stephen, I want to go back to something you started to talk about that I think is important to discuss as we move through this business life cycle—the eventual transition phase. I’m sure as a mature company, you have some decisions to make. What are those decisions? Go back to those decisions and briefly talk about each decision and why you would make that type of decision for your business.
(00:12:47) Stephen Schaaf: I assume you’re talking about the need to determine as leaders if the business will still be viable in the future. Can we still operate and give us the appropriate return with the risk we’re taking? If yes, then the current owner or owners will need to decide if the business will transition to another generation or to another nonfamily executive team member coming in. But if the company’s not viable, we probably need to evaluate an exit or a possible sale, which I think you all may be covering in another future episode after this. We’ve seen this with several of our mature companies that realize there’s a lot of consolidation going on in all industries right now where companies are buying up others. They’re becoming bigger and bigger. Do you want to be the last person standing, fighting the 800-pound gorilla? And if you think that’s the best for your company and your family, then maybe you need to consider exiting at some point to a competitor. Then your family can begin a new chapter in managing the proceeds from the sale and leaving a legacy for future generations.
(00:13:50) Cyndi Warren: Stephen, thank you so much for all of your insights today and sharing some of your experiences with us for businesses in this maturity phase of their life cycle. So here on The Wrap, we like to ask our guests to wrap it up in 60 or 120 seconds, whatever you need to wrap it up. But what is the one piece of advice that you would like to leave our listeners with today?
(00:14:13) Stephen Schaaf: Maybe two comments here. We discussed focusing on operating efficiencies, but you also can’t stop being innovative. You guys touched on that earlier too. If you stop innovating, you’re surely going to be left behind and then have no choice but to exit the business. But if you can be innovative and monitor your efficiencies, a mature company can generate profits for many decades to come. The second point would be to know what you want your legacy to be. Determine if you have a future for your mature company that your family’s name may be on. Does that future include bringing in other family members or outside management? Don’t wait until things are falling too far behind to make that decision. It needs to be something that you’re prepared and ready to do. Decide if you can bring in other family members or whether it’s outside management, and have your legacy be your company continuing as part of a bigger conglomerate or whether you maintain it, defend it or sell it and start a new legacy with your family.
(00:15:16) Paul Perry: Stephen, thank you very much for coming on The Wrap with us and bringing your expertise as it relates to the maturity stage of a business life cycle. I think you’ve dealt with a lot of this over the years. We appreciate your 31 years at Warren Averett. You’ve helped a lot of companies through this stage and beyond. So again, thank you very much for your time and your expertise today.
(00:15:35) Stephen Schaaf: Thank you very much. I enjoyed it.
(00:15:37) Cyndi Warren: Nice to have you, Stephen.
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