If the point of a business is to generate wealth for the business owners, then business growth is generally defined as an increase in sales or revenue either month on month, or year on year. We focus on the top line, because that’s how we’re taught to read a set of accounts. So unless revenue and sales have gone up, the business hasn’t grown and in fact it may be considered to be in decline.
We may tweak other elements, so even if revenues are flat, maybe costs have decreased so bottom line growth still occurs, profits are still up and business owners can still take more money out at the end of the financial year.
Whichever way you look at it, wealth plays a huge part in top or bottom line growth. But, this need to grow, this need for more clients, to grow the pipeline in order to be more successful creates a lot of inherent pressure for business owners, whereas the concept of strengthening a business comes with a lot less anxiety.
Strength equals power
The concept of strengthening a business is far more empowering. It is a more internal focus that ultimately still leads to growth. For example, we talk about cash flow a lot on the podcast; making huge profits in month eight of a financial year is entirely useless if you don’t have cash in the bank in month four to pay suppliers, staff, or rent. So strengthening systems around cash flow; for example payment terms and conditions can sometimes be more important than sales.
And that is just one aspect worth strengthening. Business owners can focus on strengthening customer communications, they can strengthen service quality, strengthen their leadership or people development through training and knowledge share. Having a stronger, better version of any business is more attractive to customers, which will, in turn, lead to sustainable, organic growth, without all of the top line pressure.
Grow or Die
There is a school of thought, prevalent amongst many business coaches, that if a business isn’t growing, it’s dying. But I suggest that focusing on strengthening your business will still bring the growth and in fact just growing – for growth’s sake- can cause a business to die.
During a period of growth, lots of noise will appear in the business because as the business owner you haven’t had the time to do anything other than deal with the increased demand. You are building or delivering your product, on-boarding new customers, buying space, software or other tools to support your delivery which means you don’t get time to take stock because everything’s coming at you at a hundred miles an hour.
Now, we may be just splitting semantics here; I say strengthening, you say consolidating, but I think every business should, after a period of sustained growth, take their foot off the gas and strengthen (or consolidate) their position including their systems, their people and their operations. You can still grow everything other than your top line through this process.
If you’re growing consistently for say six months, then in the following three months- or 50% of the growth period- I would argue that you need time to actually review your new systems and your new people to make sure they’re all bedded in, make sure you aren’t spending money on things you don’t need to. You have grown the top line; now focus on the bottom line.
This is the time to look at your margins, make sure you aren’t still offering discounted rates to attract customers, review your pricing strategy check you aren’t loss-leading throughout a client’s lifecycle. You may have taken on a new overhead – at pace- to deal with the growth; now is a time to look at the way you financed it or are using it. I’ve seen lots of businesses who just grow, grow, grow, thinking everything’s rosy and then bang, they run out of cash!
I always encourage clients to create the business they aspire to, not the one they have, so getting the right operations, the systems, the people, the brand, the marketing, the leadership in place for where you want to be in two-to-five years’ time. Spend time strengthening your ability, your attitudes and your behaviours to be better at what you do. Delight your clients and growth will come.
Death by growth
A client from a previous business was increasing his revenue by about sixty to seventy grand annually. He was approaching a million pound business but his margin –the amount he made per pound that he sold- was dropping every year by about five or six percent. His problem was that while he was taking on more and more work, he didn’t have the capacity or the machines in house to deliver it so was subbing it all out and having filled up his regular sub-contractors, he was going further and further afield, using more and more expensive services to get the work done. All the new revenue was costing him more and bringing more stress.
We sat down and instead of focusing on growing, we asked him to think about strengthening. We said, ‘if we take out this £300,000 of extra sales you’ve made over the last three and a half years and start saying, no, what can this do for the business and importantly for you’? There were two outcomes; he jettisoned the more stressful work being outsourced to more expensive and less skilled contractors and raised the prices for the work he could deliver in house using his two best sub-contractors. The result was that yes we knocked £300,000 off his total revenue, but we gave him back about a day a week out of the office and actually created about 35,000 additional net profit.
The growth wasn’t making the business stronger, because it was becoming more and more dependent on an ever increasing pool of sub-standard, sub-contractors who were getting further away from delighting customers. In this example, growing was actually causing the business to die.
Growth by social media
Now, of course if you are a business owner that uses social media a lot, particularly to build your personal brand – showing how you are smashing it daily- you may not want to change your focus from telling people how well you are growing. Posting less can lead to a perception you aren’t doing well, but I think that in this scenario, transparency and honestly builds trust – and strength.
Change the rhetoric slightly, stop posting about how delighted you are to on-board a new client and maybe talk about how well you are serving those clients – or better still get them to do it for you.
Strong Service Brings Growth
If your business continually delivers the highest quality of service, you’re always going to have a business and arguably, one at the top end of your industry in terms of performance. To continually create a wonderful client experience your business needs to be strong. As soon as the client service delivery drops your business is becoming weaker. It may be because of rapid growth and there’s too much demand for the resource that you’ve got but it isn’t sustainable to not deliver good service.
My final point is this; take the time to review your business, look at all aspects and then ask yourself three questions:
Does this help grow my revenue?
Does it strengthen my bottom line?
Does it strengthen my personal wellbeing?
Looking at things through these lenses is a good starting point to strengthen the financial side of your business as well as the health of the person running it. If you answer no too many times, jettison that work or activity. You will be stronger – and grow better- for doing it.