Don't Just Grow for Growth's Sake. Have a Plan.
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Of course, every business owner has to set their own goals and priorities, but as children learn when they first play video games: the player that stands still gets killed first. In business, standing still or not growing means that your competitors are probably going to pass you. Usually, businesses are either growing or shrinking -- standing still has never been like a good long-term strategy.
It’s important we define what kind of growth we’re talking about. While wild and crazy growth isn’t necessary, growing in some direction is, at least if you want to stay in business. There’s “revenue growth” (top line) and “profit growth” (bottom line). You can also grow in terms of innovation, technology and new offerings. Very often I find entrepreneurs who get caught up chasing top-line growth as measured by revenue, but I have yet to find a company that can put revenue in the bank.
Pure company size has never been an attractive goal to me. As the famous business management advisor, Jim Collins, once said, “Big does not equal great, and great does not equal big.” Instead of getting preoccupied with revenue and size as a determinant of growth, the focus for excellent companies is the “right growth.” You should choose the metrics that better describe the kind of growth that’s right for your company and that can be banked. Profit growth (gross and net profit, pre-tax income, EBITDA, operating profit) and cash flow is really what you want to focus on. Not employee growth, office space, units sold and other physical measures of size.
There can be something very damaging about too much growth. When companies grow dramatically they need to plan for it in the areas of people, processes and technology. How will the company intelligently put the elements in place to handle this rapid growth? If you’re a Google that built itself from day one to grow rapidly with lots of funding, then it’s a different story, but it’s the rare entrepreneur who plans for and puts the infrastructure in place ahead of time to intelligently grow a business.
Many entrepreneurs recognize these limitations and may grow quickly for two years in a row, but they often take a hiatus for a year to let people and processes “catch up” to the growth pattern. Fast growth may require different people, skills, processes and technology. A never-ending fast-growth model requires a support model to do it well, which very few businesses can navigate.
The right kind of growth is beneficial. It keeps people improving their skills to grow with business needs. It creates the need for new positions, which offer advancement opportunities for employees. It keeps technology systems current so future updates don’t become major efforts. And it forces a company to evolve processes to handle greater volume and revenues.
Growth is good, but only if it is the right growth with a plan for the people, process and technology infrastructure to do it intelligently and profitably. Growing for growth’s sake isn’t a wise or necessary business move. Growing to stay competitive is.
Related: How to Avoid Hiring Duds