Why Grow a Business?
In these times of great political and economic uncertainty why would any sane Briton wish to grow their business? The answers are opportunity and discipline.
Track back the biggest brands or successful companies and you’ll found that they were started at times of recession when the old assumptions on growth were being shaken. The most financially successful entrepreneurs are not the ones who are always enthusiastic, but those that are cautiously optimistic, able to be challenged and to find the most efficient solution.
Starting in hard times means that opportunities are taken with the risks assessed and then pursued diligently.
Any business to survive must grow if only to keep pace with inflation. If your prices stay the same and your costs increase then your margins are always under pressure. Without profits, the financial benefits of owning and running a business are greatly reduced.
Without room to increase others’ pay, then staff will leave even if it’s seen to be a calling. Check out teacher and health service professional leaving rates for proof.
A business with only one member of staff is a high risk business as illness comes to us all sometime. This risk is reduced if there is a wider virtual team able to take up some of the slack in either getting or delivering business.
The need to grow applies to all businesses even those that are craft or social enterprises to ensure sustainability not simply profit.
The three most common measures of growth are:
- Top line turnover
- Bottom line profit
- Staff employed
Top Line Growth
The first can be seen either in £ sterling or as a percentage increase over last year. Often this is used to determine high growth companies where which much support is focused.
But fast growth comes with warnings. Massive percentages may look good but may only be the result of a low base- a 100% increase on 1 is only 2. Or could be the result of lucky timing- the big client comes on board with a large order which is not immediately repeatable.
Top line increases require improved marketing and sales efforts and consistent quality production.
Large increases in turnover are nothing, if there are no increases in profit. Again this is either as a percentage or as figure. For some companies growth can be in profit on the same turnover. This is achieved either through efficiencies in production or in the sales process.
For most companies 80% of turnover comes from 20% of their clients. Growing might therefore mean culling the number of clients the business has to focus on those giving the biggest return such as reliable repeat orders. But beware becoming over-reliant on a small number of clients who might all hit the buffers at the same time.
Staff employed is used to divide companies up into small, medium and large. This is a throwback to the last century, where big was always beautiful. It assumes that staff are drawn together in large factories or offices. But consider that Alphabet (Google’s parent) has only c99K employees and Facebook c25K and size becomes less important.
If growing staff numbers, always think what skills are needed, why are they needed now and who in the broadest sense could provide them over what timescale. Never simply replace some who leaves with the same job spec. Always review the skills that will grow your organisation over the next 3-5 years and will allow you to survive this year.
This is often forgotten by owner-managers. If your business is just a job then why have the added hassles of ownership? Growth by systems and people increases the likelihood of a successful sale of the company so you can then start to follow your dream. Or increase the happiness within the business by setting sensible targets on growth and efficiency serving a consistent group of customers.
If you need to grow to survive long term, it is essential to understand what role you need to take to ensure your own happiness. And then how comfortable you are measuring it in turnover, profit or people.
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