7 key ingredients often forgotten

Every entrepreneur aims to grow their business. With more customers and more sales, profitability should also increase. But that is not always the case, and many entrepreneurs find the hard way that more sales do not automatically translate into a bigger bottom line. Healthy growth is great. Hopeful growth is dangerous.   

Growing a business consists fundamentally of implementing a mix of strategic planning, financial management, and marketing. Most are familiar with the key tools to build growth of revenues (The Top line) but growing profits (The bottom line) needs different skills.

Growth is achieved through expanding to new markets, developing new products, or increasing market penetration. Getting existing customers to buy more, acquiring new customers, developing new products/services and doing more with less costs through better productivity. Focusing on cash flow and high-margin sales ensures a “healthier” expansion.

Growth strategies include also organic growth (internal expansion) which is generally, lower-risk and focuses on building capability via sales, marketing, and innovation. Conversely,  inorganic growth through acquisition provides rapid market entry, instant scale, and competitive advantages but involves high upfront costs and integration risks. Both strategies aim to increase revenue and market share which should lead to better control over price and better price drives improved profitability.   

I love to summarize all these great “how to’s” with four simple words: Revenues UP and Cost DOWN. This is of course, an oversimplification but nonetheless, true. What is not covered in creating and managing growth is a handful of unwritten rules that could make the difference between success and failure. Here is my list ...

1. Grow from strength: Don’t just grow for the sake of growing. Don’t count that growth will self correct weaknesses in the business. (Example: Build a strong foundation before you build more floors!)
2. See through the customer eyes: Lose the sale but keep the customer, is better than making the sale and losing the customer. (Never take customers for granted!)
3. Is your team ready and able to handle the growth? Better to “practise” before the game because you cannot “practise” during the game.
4. Introducing change? One thing at a time or it will be difficult to know what worked from what didn’t.
5. Control your Gross Margin before you seek sales and revenue growth. Extra volume does not always compensate for a lower Gross Margin. (also Watch the increase in your break-even point)
6. Do you have sufficient capital? The pain of planning is far better than the pain of regret.
7. Are you in a “sprint” or a “marathon”? Remember the say: “If you want to go fast go alone. If you want to go far, go together.” I prefer a marathon.

(W 445)