Eileen Martinson — who was brought to Sparta Systems (Hamilton) in 2011 to lead the company from status quo to accelerated growth — told several hundred attendees at the New Jersey Tech Council (NJTC) CFO Awards Breakfast on June 12, 2013, to shake up their sleepy middle-market companies and grow.
She then provided the framework that had helped her implement strategies to deliver more than 20 percent top-line growth year over year at Sparta, a middle-market company in business for 18 years.
Speaking to the group who had gathered at the Forsgate Country Club in Monroe Township, Martinson called herself a “framework type of person,” explaining that hers will not work for everyone. “You have to come up with your own framework and adjust it according to your style and what you are trying to accomplish with your particular business,” she advised.
Growth should be a bit easier in this economy, Martinson indicated. “We are seeing some recovery in the housing market and the unemployment rate,” she said.
She pointed out that middle-market companies — those with annual revenue of between $25 million and $1 billion — fuel much of the country’s economic growth, generating $6 trillion in revenue each year and employing 20 million Americans. If middle-market companies concentrate on growth, the whole country will benefit, she said.
Companies start down the path toward growth by defining the customer value proposition, Martinson said. “I have some of my team here today, and they know I always say it’s all about the customer.”
The book Blueprint to a Billion by David Thomson has been particularly helpful to Martinson as she has sought to lead Sparta. In it, Thomson presents three types of value propositions. One describes companies that are leading a market, creating something entirely new. Within that segment are subcategories, one of which is the gap filler. “Where we are going with Sparta Systems is towards filling the gap around enterprise quality,” a new market, Martinson said.
The next step in growing is to determine the total addressable market for your company. Martinson said making this assessment is not easy when you are filling a gap in a new market. You have to know the total market opportunity, which includes learning the market size and who the competition is. You must ask if there is enough growth available for the size company you want to be, she said.
While many businesses can obtain market size information from analyst companies, in Sparta’s case there really isn’t any data on the enterprise-quality market “because we are creating it,” Martinson said. “What Sparta had to do … is look at the companies it believed it should serve, look at the number of employees in these companies as well as Sparta’s historical contracts, and then determine the revenue opportunity,” she said.
Martinson said she had done her due diligence before moving to Sparta. The company was “a little sleepy,” and she had thought she could do great things with it. “I started out at 8:30 a.m. [on] day one in a webcast to everyone, saying, ‘We are going to double in size during the next couple of years.’
“You have to go out there and set the bar high,” she noted, because if you set the bar at 10 percent growth, you’ll probably struggle to achieve 7 percent.
The next step is to understand your internal capabilities, including those of your management staff. “We had a great management team in 2011, but we had to make some really hard decisions … because sometimes you have really good people but … they don’t fit the vision of where you are trying to take the business …” It takes a lot of time to find the right people and close the deal with them, but if you don’t get the right team in place, you won’t move ahead, Martinson said.
Alternatively, your employees may be the right people who are missing skills, so you have to help them obtain them. “For example, we are running a first-line leadership program this summer for our first-line managers. I believe if you want to scale a company, first-line managers are critical,” noted Martinson.
Sparta surveys customers, the company’s most critical resource, to find out how it is doing. “If we get a detractor, we call them immediately, find out what the issue is and solve it immediately,” Martinson noted. The company studies trends to determine whether it needs to adjust its customer strategy.
It’s important to understand your employees, Martinson pointed out. “We are in a competitive job market. We work really hard to recruit the right people into our company. It’s not easy. We have a tough standard for the kind of people we want.” Sparta surveys its employees to determine how the company relates to them. It also runs employee outside enrichment programs, such as female managers’ networking opportunities and charity golf events.
Growth company CEOs have to ensure their product portfolio aligns with the customer value proposition and the firm’s growth strategy, Martinson said. Don’t build things because they are cool, she advised; make sure customers will actually pay you for them. “This does require continuous innovation,” she said, noting that “if we don’t continue to innovate and change and add more value for our customers, we are not going to continue to grow.”
Don’t be afraid to partner for innovation, Martinson advised. “We had a little bit of the ‘invented here’ syndrome going on. Unless we invented it at Sparta, it wasn’t good enough,” she said. Now the company partners with others in the market.
Martinson said she believes in cash flow, and Sparta is funding its growth out of operations. “We’ve actually reduced our EBITA [earnings before interest, taxes and amortization] to be able to support our go-to market, putting more salespeople out there and investing in the product. I told my investors, ‘We are going to be real slackers this year … we are only going to have about 26 percent EBITA,’ ” she said, eliciting a chuckle from the audience.
Another action key to growth is recognizing critical employees who deliver value to your customers. They may be individual contributors tending to customers in services and support, or employees delivering innovation at an R&D organization. “Find those people and take really good care of them,” Martinson advised, because other companies want them.
You must also ensure your compensation plan is aligned with the growth plan, she noted. Sparta ties a bonus program to profitability and revenue targets, but it also has an accelerator tied to licensed revenue growth, a leading indicator for the firm. Everyone in the company is eligible. Everyone’s bonus is also tied to customer satisfaction, Martinson added.
Martinson advised that companies break down the overall growth plan into quarters so the management team can “wrap their arms around it.” She holds yearly strategy and twice-monthly operations meetings that review critical accounts, product plans and other operational imperatives. “This is how you stay on target,” she said. “It’s really important.”
When you are growing quickly, you are also hiring and adding people quickly, and “there may be some people you need to pull out every year,” noted Martinson. “Those are hard decisions, but that is a good way to protect … your profits. If you don’t take care of this year by year, you may wake up one day and find you have to lay off a lot of people because your business is stalled,” she explained.
Finally, it’s all about execution, Martinson pointed out. “We use a scorecard approach to run the business. Having worked in public companies, you tend to get focused on quarters. But when you use the balanced scorecard approach, you look at all the aspects of your business that help you drive those numbers,” she said.