Your Company's Worth Is Far Greater Than Its Revenue Growth Metrics
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Attending dinner parties with the in-laws. It’s one of the many things we do in life that we don’t necessarily want to, particularly because it does not truly convey appreciation for our significant other. (Or, perhaps, I’m just not a very good boyfriend!)
I share this same outlook in regards to applying for the revenue-based awards every year that solely focus on metrics. Admittedly, my vanity precludes me from not adding these types of awards to my LinkedIn profile and name-dropping it with clients from time to time. However, such awards fall prey to the increasingly over-reliance on metrics, and thus fails to recognize much more sustainable attributes of a business.
Does it truly matter if your revenue is exponentially growing, if your best long-term investments -- your employees and your relationship with the community -- are lost in the race to the top?
Although for a nascent business in startup mode or an existing business expanding capacity or geographical scope, occasionally it may be a higher priority to grow the top line to generate sufficient flow through the new segment of business to offset fixed costs.
Ultimately the goal of all private businesses should be to grow profits, not simply their revenue. After all, as esteemed fashion executive John Gunn once told me, “Bill, volume is vanity, profit is sanity!”
At ROYCE, our growth is not an accident; it is the product of a brand with well-defined values. Companies like ours cannot grow if employees are not engaged, if symbiotic bonds with the community are not fostered and if they do not serve their customers well. They cannot grow if they do not maintain an innovative culture that solves problems and believes that good enough never is. They cannot grow if they do not reinvest their profits in their employees, customers, and community.
My gripe with metrics-based awards is that they do not explicitly covet companies that champion these values, although it may inadvertently highlight some that emphasize them because their growth is the outcome of said values. While the NJ Family Business of the Year Award or New Jersey Business magazine’s Small Manufacturer of the Year or COMMERCE magazine’s Best Practices in Leadership Award may not make the headlines on an account of both a lack of sexiness and national relevance, these are awards I am proud that we at ROYCE received this year. They are a testament to the importance of taking a holistic approach to valuing a firm, rather than a shortsighted litmus test of “did we make X percent more money this year, benchmarked against our performance three years ago?”
When people ask me to measure my business’ growing success, I point to two metrics: contribution to our employees’ 401(k) plan and extent of donations to Hudson County-based non-profit organizations. Why? Our employees and community are not the subsequent benefactors of our growth. They are our catalysts of growth.
Alas, expect me to apply to the list again next year, because, unfortunately Mr. Gunn, I do have my moments of vanity!