The phrase “business growth” has been considered the most important goal for virtually any business. It’s often talked about as the only goal worth pursuing, and yet, is it really the business version of the Holy Grail?
For years, I believed that a business either grows or dies. It’s a phrase and belief developed from reading the books of American business author Tom Peters. Recently, especially post Brexit, I’ve questioned this more and more. This article is written to raise the question of whether growth is good for business and to point out some of the pitfalls, challenges and dangers that the pursuit of growth presents.
Is it true that a business must grow?
If we take the definition of growth as an increase in revenue, then this objective should be one of many areas of focus throughout the year. It’s expected that a key measurement in accounts is sales revenue, the top line so it will always feature highly in key performance indicators. It’s the first figure bankers and financial analysts may view as a unit of measurement, however, it is certainly NOT the key figure for any business to focus on.
If a business changes its value proposition, then there can be a fall in sales whilst still recording strong net profits. Increased efficiency and effectiveness in the workforce can also contribute significantly to a strong, healthy bottom line, whilst revenues may have fallen.
With this in mind, turnover itself should be considered a guide and nothing more. There are occasions when high growth in sales revenues leads to weaker profit results or even losses, so there is no guarantee that a growth in one area automatically leads to growth in profit.
The continued pursuit of growth itself, to please board members, bankers and shareholders, brings many challenges such as
- Staff
- Culture
- Customers
- Systems and controls
- Finance
- Management
A business may or may not be ready to grow. However, irrespective of the position of readiness, the business owner must react to the situation presented and measure where and when investment is required. Let’s take a further look at the challenges facing business owners in the key areas above.
Staff
- Have you recruited the right people for the job they are performing or are there some members of your team who are struggling?
- Is there a strong and clear management and departmental structure in place to allow for growth?
- Is there a good recruitment system so that additional members can be added quickly?
- Are there good training systems so that new recruits can be up-to-speed and contributing to the organization quickly?
Culture
Whilst this may appear to be a strange topic to add here, company culture is still very important. Without a good culture, a business can be a miserable place to work, which in turn leads to unhappiness, high staff turnover and usually a heap of problems.
- What happens to the culture of the business as more staff are hired, bigger premises are required etc.
- How does the company respond to change?
- What are the social markers for the company?
- Does the company have set moral guidelines?
Customers
- Is the company generating new customers on a regular basis?
- Are these new customers the ideal mix for the business?
- Are existing customers looked after and returning to buy again?
- Is there recognition and segregation of the customer base?
- Is there a process to manage out “unwanted” customers?
- Are there key measurements that help to identify the ideal target customer from the existing database?
Systems and Controls
A business operates on systems and controls. Without them, there is chaos, “Spanish” customs, hearsay, poor management, unhappiness in the workforce – in other words, a business that is ready to collapse.
- What are the systems to manage and record key data from every department?
- How will the company know if it is growing too quickly?
- How does the business record and control its daily activity?
- How does the business record future events to ensure they happen?
- How does the business ensure quality control in each department?
Finance
- Does the business have sufficient funds to maintain its daily, weekly and monthly activity?
- Has the business financed investment correctly?
- Are there funds set aside for future investment?
- What controls are there to prevent fraud?
- What controls are in place to prevent or reduce financial accidents?
- Is the business able to produce timely and accurate financial data?
Management
- Is there sufficient management experience?
- Are the managers capable of motivating and looking after staff to achieve the company’s targets?
- Are the management over viewing, running and recording the company systems and controls effectively?
- Are the right people in management?
- Are the management leading the cultural goals of the business?
Growth is much more than merely good strategy…
Whilst it’s vitally important for a company to have a good strategy to be able to compete in the business world, strategy alone will not guarantee success.
As you have seen by the above list, there are so many facets to a business. A good business needs to ensure all the checks and balances are in place if it to become a great business. What is a great business? I consider a great business one where there is healthy competition, the staff are happy and enjoy working there, customers are happy and the business has a good reputation for quality and caring. Of course, the quality must be in every department.
To pursue growth is a good ambition, but there will always be costs involved. A good business recognizes this. The unpinning quality in every business is the team. I’m not a big fan of using the word “staff” because it doesn’t truly sum up what they all must be. For me, the word “team” says so much more about the business; Together, Everyone Achieves More. There’s a shift in culture between the two words from us and them to “we’re doing it together.”
It’s clear that the people are the critical ingredient to business success, with systems, controls and strategic clarity the glue that shapes performance and makes the team great. That means management must be good too, being important members of any team. A good leader creates a good team. The team members enjoy working alongside a good leader. There’s a positive “buzz” which leads to faster development. Business owners need good leaders to manage the people and systems.
Without these key components, any business will struggle to grow. Any ambitious business owner must work ON the business and with the people. Recruiting good people is one of the essential skills, as it’s these new recruits who need to fit into the culture and structure, bringing new skills or higher skills to the team.
Summary
This article opened with a question on whether growth was the most important goal for a business. Within this, we had to define growth, which was seen by many as merely an increase in sales revenues. However, that on its own is purely a numbers exercise.
The planning, checks and balances required to see a business grow from say £500,000 to £5,000,000 in sales are varied and far reaching. Without taking care of the many areas mentioned earlier in this article, focusing on the numbers can, and most likely will lead to ruin.
When discussing growth, perhaps the word “growth” itself leads to misinformation through assumption. Perhaps the phrase “business development” is more all-encompassing. Every aspect of the business must be managed and developed. The fine-tuning and sometimes complete overhaul is a must, as a business is only as strong as its weakest link. By doing this, and continuing to develop the team, the effectiveness of the team and possibly new ideas can lead to greater efficiency in many key areas. This, in turn, is setting up the conditions for efficiency and growth in profits possibly without growth in revenues.
In closing I encourage you to think carefully about your ambitions for 2017. Growth in sales is wonderful if the other aspects of your business can take the strain. Focus on a whole business development approach and you are then building a more solid and sustainable business for the future.
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