Fuel Organic Growth by Finding the Blue Ocean

by Sep 23, 2020

The following is an excerpt from The Private Equity Playbook.

For those of you who have obtained your MBA, you may have heard the term blue ocean, first coined by Professors W. Chan Kim and Renée Mauborgne in their 2005 book Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant. Blue ocean in this context relates to finding new opportunities for organic growth and is centered on the concept of pivoting away from red ocean (water that is red from the blood of competition) in favor of new markets with little to no opposition. This provides you with new opportunities to accelerate organic growth by serving adjacent markets that historically have been untapped.

As an example, I currently run a company with 1,200 service technicians who provide refrigeration and HVAC service in the food retail end market (grocery stores). In times of disaster, getting food and water is important to people. A few years ago, there were hurricanes in Florida and Texas. Our team positioned gasoline and generators at our offices to make sure our trucks could be back on the road as soon as the storm cleared. The technicians ran from store to store, getting them back online because that’s what we did. It had been our core addressable market.

In Florida, people were dying in assisted care facilities because they didn’t have refrigeration or HVAC to help in meeting their medical needs. Our company could have been rolling trucks to assisted care facilities to fix air-conditioning or refrigeration just as easily as we could have been going to grocery stores. Out of that disaster and that human tragedy, it opened our vision to a new line of customers.

We started thinking about our own business. We started pivoting a little to the left and right of the customer base that we’d been servicing and redefined our customer as anyone who thought of refrigeration and HVAC as being mission critical to their operations, and we suddenly found billions of dollars in new market potential that had not historically been the target of this particular company. Additional pivots since then have increased our total addressable market from $5 billion to more than $50 billion. Those pivots helped increase our ability to deliver sustained organic growth.

Another example: Years ago, I took over as president of a medical device repair company. When I arrived, I found that the business model had failed. The company had started in the 1970s and failed to adapt to changing times.

The customer base was hospitals that contracted with the company to provide services for all the devices within the hospital. Those devices fell into two categories: biomedical (monitoring equipment, IV pumps, heart monitors) and imaging (MRI, CT, ultrasound) equipment.

In the 1970s and 1980s, the company would put their own people inside to handle the biomedical equipment and outsourced the imaging equipment to be repaired. Over time, the biomedical equipment stayed the same, but the imaging equipment evolved. Superconducting magnets in MRI and consumable X-ray tubes on a CT scanner might cost upward of $100,000. The business model no longer worked, because outsourcing this sophisticated work became too expensive.

The company was now providing service on a part of their business that had become more or less commoditized. They were losing money. The company had failed to recognize that they could no longer be an insurance provider in imaging. They had to do imaging service because that was in their contract, but they couldn’t keep up this path. I came in, took a look at the business and marketplace, and decided to do one small acquisition of a parts company. Having our own parts would cover the biggest expense on the imaging equipment repair. I then built an imaging repair service arm inside the company.

Instead of doing only self-performance on biomedical equipment, we could now also self-service imaging equipment in the radiology department. This changed the financial dynamics, and the company became highly profitable. It was a failed business model that we changed, allowing us to increase margin, become more competitive, and sell to new customers, which ultimately drove organic growth. Because I bought a company to help facilitate the pivot, increase margins, and enable organic growth, this is also an example of combining all three growth strategies in one move and achieving a “triple lindy” (referring to a level of difficulty in a dive exhibited by Rodney Dangerfield in the 1986 comedy Back to School).

A lot of times, companies get stale or stagnant, and organic growth drops off. That doesn’t mean that organic growth is unavailable. It simply means that people need to rethink, retool, redesign, and potentially pivot.

Questions to Ask Yourself

  1. If we hire more salespeople or restructure sales strategy, will we grow faster?
  2. Do we have a good balance of hunters and farmers?
  3. Is our sales process representing all of our products and services adequately?
  4. Are we selling what our customer wants or trying to force them into purchasing the product/service we happen to sell?
  5. Can we tier our products and services to widen customer appeal and capture incremental volume?
  6. When is the last time the company name/website/marketing material was updated?
  7. Are we challenging the status quo or just doing things the way they’ve always been done?
  8. Can we pivot to find blue ocean?

For more advice on finding the blue ocean, you can find The Private Equity Playbook on Amazon.

President and CEO, bestselling author, trusted management consultant and acclaimed guest speaker, Adam Coffey is known for building high-performance cultures and driving transformative growth. Most recently, Coffey led CoolSys, a commercial refrigeration and HVAC service company. During his four-year tenure, CoolSys increased revenue by 239 percent and EBITDA by 376 percent while growing to more than 3,000 employees. In April 2019, Coffey led the company through a private equity sale from the Audax Group (Boston) to Ares Management (NYSE: ARES). A licensed general contractor, pilot, former GE executive, alumnus of the UCLA Anderson Executive Program, veteran of the U.S. Army, husband, and father of three, Coffey lives in Westlake, Texas.