Managing growth: Rapid recovery

Written by ProfitGuide Staff

Charles Chang’s “aha!” moment came in February 2007 while on holiday in Hawaii. Despite the saltwater fly fishing, spectacular surf and cold beer, the president of Port Coquitlam, B.C.-based Sequel Naturals Ltd., a maker of premium natural health supplements, couldn’t shake the thought that things were going very badly for his firm.

A few months earlier, Chang had hired a controller whose disorganized accounting practices contributed to a $400,000 inventory write-off. Personality conflicts among staff were soaring and the company’s first foray into the U.S. market was lacklustre at best. To make matters even worse, renovations on a larger location purchased to accommodate the growing company were months behind schedule, with huge cost overruns. In a year, the bottom line fell from a profit of $1.4 million to a loss of roughly $300,000 — the company’s first loss since its startup year.

“It was total mayhem,” Chang remembers. So, while on holiday, he buried his nose in Michael Gerber’s classic book, The E-Myth: Why most small businesses don’t work and what to do about it. Then it hit him. “Everything was flowing through me,” says Chang. “I was totally chained to my company.” He had been responsible for business development, product development, sales, marketing, distribution and exporting. Gerber’s book told him that saving Sequel would require building a business with enough processes, controls and senior management expertise to thrive without him.

When Chang founded the company in April 2001 after quitting his job as VP of sales at a corrugated box company, Canada’s nutritional supplement industry was growing by 20% a year. Chang’s niche products — his first was Colostrum, a little-known immune booster — hit a chord with customers. Soon Sequel Naturals was a major player in Canada, with national distribution through 3,000 stores and another hit in Vega, North America’s first-ever vegan meal-replacement line, which accounted for 40% of the firm’s sales. The result was $5.4 million in revenue for the year ended July 31, 2007 good for five-year growth of 3,730% and 8th place on the 20th annual PROFIT 100. While most companies would greet such rapid progress with joy, it almost caused Sequel Naturals to spin out of control.

“I had always been a sales and development guy,” says Chang. “But that day in Hawaii, I made the decision to become a process and HR guy.” What ensued was an eight-month, take-no-prisoners turnaround that has transformed Sequel Naturals from a bootstrap-managed startup to professionally run, export-savvy business in better control of its destiny.

For months before the overhaul began, daily squabbles among employees caused by personality conflicts and an absence of leadership had been hurting the company. And while Chang’s general manager had great operational skills, he struggled with HR. So, when Sequel Naturals’ new building opened last August, Chang moved out of his home office, where he’d worked to be closer to his three young children, and set up shop at HQ to keep a closer eye on his staff and finances. Then, at the urging of other entrepreneurs in the peer-mentoring group to which he belongs, Chang refocused his GM on operations and built a management team to oversee sales, marketing and finances. He fired five problematic employees, but also hired 20. He lured the latter with the company’s new profit-sharing plan, performance bonuses, gym and education subsidies, plus a Google-meets-the-Brady Bunch office culture built on organic smoothies and salad bars, weekly all-staff meetings complete with recognition rewards and regular all-staff retreats.

To gain control over finances and company processes, Chang identified eight key performance indicators, including sales, gross margins, accounts receivable and average transaction value, which the company began measuring weekly. At Monday-morning staff meetings, Chang drills his managers and employees on those metrics. “I want everyone to know those numbers inside and out,” he says. “We went from being unmanaged to extremely managed, and staying on top of our numbers is how we’ll stay that way.”

Once the right people and systems were in place, Chang could focus on expanding his company into new markets. Sequel’s first foray into the U.S. in 2006 saw its products turned down by almost every distributor and store it approached. So, last winter, Chang switched gears. Rather than trying to blanket all of the U.S. at once, as he’d done in Canada, he directed most of his advertising and demonstration budget at the health-conscious, progressive, affluent population of Southern California. Chang even sent his full-time spokesperson, Ironman triathlete and Canadian ultra-marathon champion Brendan Brazier, to Los Angeles to launch a PR blitz, peppered with educational seminars. The strategy worked. Sequel Naturals’ sales in California have doubled each month since the campaign began, and its products are on the shelves of Whole Foods, the world’s largest organic and natural products grocery chain. “The U.S. isn’t a country,” says Chang. “It’s 10 countries. You have to put your eggs in a smaller basket and pound it until you’re successful. Then you move to the next region.”

But his new-found focus doesn’t stop at exporting. As Chang looks ahead, he’s faced with what could be his biggest challenge yet — rip-offs of his products. Sequel Naturals has made its name by being an early entrant in a new product category or by inventing a category entirely, as it did with Vega. To continue to be competitive, Chang’s firm needs to stay on top of research and development. But now that his company is under better management, Chang can get back to doing what made his company grow so fast in the first place — finding new niches to dominate.

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