What Companies Should Be Doing to Invest in Growth While Playing it Safe in 2020

In today’s bull market, growth is the name of the game. As the new decade begins, companies are on the lookout for investments that can help them scale.

Unfortunately, picking the right investments for your business is rarely easy. Most investments with major growth potential also carry major risks. The work of investing is finding the best balance of the two.

Get The Full Warren Buffett Series in PDF

Get the entire 10-part series on Warren Buffett in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q4 2019 hedge fund letters, conferences and more

Notes From Schwarzman, Sternlicht, Robert Smith, Mary Callahan Erdoes, Joseph Tsai And Much More From The 2020 Delivering Alpha Conference

Stephen SchwarzmanThe following are rough notes of Stephen Schwarzman, Steve Mnuchin, and Barry Sternlicht's interview from our coverage of the 2020 CNBC Institutional Investor Delivering Alpha Conference. We are posting much more over the next few hours stay tuned. Q2 2020 hedge fund letters, conferences and more One of the most influential investor conferences every year, Read More

Picking The Right Investments

There’s no secret formula to picking the right investments. If there were, every small company would wind up an industry star.

With that said, there are some helpful guidelines for maximizing growth without sacrificing security:

1. Focus on what you know.

Everyone has expertise in different areas. Your specific knowledge base should inform your investments.

Start with business functions you’re already familiar with. Chances are, you have knowledge in those areas that others do not, which should give you a leg up. It’s easy to feel unprepared  as a business leader to operate in a highly digital environment, for example. Especially if you’re in a slow-moving industry, you might be able to get ahead through digital marketing.

2. Play defense on disruption.

Some executives can say that their company has been directly affected by tech-driven disruptions. Digitization has changed the game in sectors ranging from retail to finance to healthcare.

If you have reason to believe a competitor is about to roll out a disruptive technology, create a counterweight. Chatbots might bring 24/7 service to your space, for instance, but almost 90% of customers would rather speak to a live agent. Perhaps it’s the right time to invest in growing your staff.

3. Set up a subscription service.

The stickier your product or service, the better. By setting up a recurring revenue stream, you improve cash-flow predictability and give yourself a buffer period in case customers were to stop buying.

Although software-as-a-service companies have popularized the subscription model, it works just as well with physical products. Remember, subscriptions started in the world of magazines and newspapers. Apparel, dog toys, and more can be sold this way.

4. Build your bench.

When a recession hits, people come out of the woodwork to apply for jobs. Unfortunately, many of them are only looking for a paycheck and won’t stick around when an opportunity they are truly interested in crops up.

If you’re one of the lucky companies that continues to do well, you don’t want to be stuck sorting through thousands of resumes to find a couple of gems. Before bad news strikes, think through the positions you may want to fill in the coming year. Keep a couple of strong resumes in the hopper for each, and all you’ll have to do when you’re ready to hire is pick up the phone.

5. Diversify your team.

Diverse companies bring in about a fifth more revenue than their more homogeneous peers. Don’t go out of your way to replace people, but keep diversity’s benefits in mind when you’re scouting for new team members.

Think broadly about diversity. It isn’t just about race and gender: The more different the backgrounds, ideologies, nationalities, identities, and interests of your team, the better. Unique people tend to bring unique ideas to the table.

6. Be patient with the right investments.

Just as in the stock market, investments in your company’s growth take time to pay off. Team members take time to train. Marketing campaigns must be rolled out, run for months, and analyzed before the results are clear. Tweaks to sales processes should only be evaluated after a dozen or more clients make it through the pipeline.

Don’t be afraid to try things, and don’t expect immediate results. Growing a company is all about experimenting to find what works and what does not.

7. Place a premium on culture.

So often, promising companies are undone by toxic work environments. Some analysts attribute Wells Fargo’s scandals to a dysfunctional company culture.

Cultural problems can be hard to spot, especially when you are steering the ship. The best medicine is prevention: Invest in team members, stop gossip in its tracks, and do not play favorites. Fixing a company culture is tougher, especially if issues are team-wide. Get everyone together to air complaints publicly and talk through your values.

8. Build up your cash reserves.

Socking money away in a business savings account might not sound like much of an investment, but it is in two ways. First, having a financial cushion creates safety in case of a sudden economic slump. Second, it lets you seize opportunity when you see it.

Recessions are an ideal time for acquisitions, for example. If you learn that a competitor in your space is about to go belly-up, you might tap your cash reserve in order to buy it. Real estate prices tend to drop as well; a cash reserve could let you buy a new office space for pennies on the dollar.

9. Double down on professional development.

Growing companies invest in their people. Why not devote your company’s extra resources to helping staff members build their skills?

There are plenty of ways to do it, many of which cost little. Offer to pay half the cost of online learning courses that workers are interested in. Bring in a speaker to talk through an area that your company as a whole wants to improve on. Send leaders to conferences in order to bring back new ideas to the team.

10. Stay lean and keep costs low.

There are a variety of ways to lower costs ranging from limiting unnecessary spending to optimizing operational staff. One area that will help you play it safe is lowering material costs.   Group purchasing organizations can help companies save money through bulk purchasing rates so costs stay low. Many companies don’t think they have the buying power for massive discounts or think GPOs are only in the healthcare area, but a GPO allows you to combine buying power with other companies.

Every investment carries risk, but that doesn’t mean you can’t control how much risk you take on. Spend where you see growth opportunities, focus on lower costs, and realize you can do both at the same time.