Demystify your growth: Why increasing revenues does not guarantee success
3-minute read
Why is it that some companies are able to expand their business with incredible success, while others struggle to profit from their growth? Clearly, this is a complex question that does not have a simple answer. So let’s break it down into its different components.
Growth vs. scale
Growth and scale both refer to an increase in a business’s revenue or profit. But after observing several high-growth companies over the years, I have come to realize that the first step in formulating an action plan for growth starts with recognizing the differences between the two.
Growing your business often means adding resources at the same rate as adding revenues. While it may be great to see your revenues increase, your profits will tend to remain stagnant, and growing in this way could also lead to severe cash flow issues.
When a company scales, it increases its revenues at an exponential rate, while only adding resources at an incremental rate. It may seem obvious that every company would prefer to scale, but scaling is arguably one of the most challenging phases for a business moving forward.
Management teams of successful high-growth companies can clearly differentiate growth from scaling and set their expansion strategies accordingly.
Growth vs. shareholder value
Another lesson I have learned over the years is that it is important to differentiate among various growth avenues, and their direct impact on value creation for shareholders.
In general, a dollar of revenue growth is directly related to a corresponding amount of invested capital fueling that growth. Management teams need to divert their attention from revenue growth, and instead spend substantial time understanding each growth mode and assessing opportunities by the amount of value they create for shareholders.
Each industry is unique and will have different avenues for growth. While new products or market development may be the best growth alternatives for one industry, for others, it could be expanding into adjacent markets or carrying out acquisitions.
Common traits of high-growth companies
Now that we have emphasized the importance of differentiating between growth, scaling, and shareholder value, let’s explore some of the common traits of successful high-growth companies.
Market positioning
Go-to-market positioning is the strategic initiative that bridges sales and marketing communications to form a foundation of scalable revenue growth. A clear and compelling market positioning lowers buyer confusion, shortens the sales cycles, increases brand recognition and boosts market momentum.
We often observe several value propositions in the sales pitches of field employees. Management teams must ensure that their sales teams are trained properly and are transferring the company’s product and process knowledge to its customers in the best way possible.
Infrastructure
Each business develops its own processes to serve its customers. By standardizing processes, organizations can minimize unproductive time spent on reinventing new approaches, and instead focus on their core value creation efforts. The more efficient your operational structure is at producing and delivering your products or services, the more scalable you will be.
Culture
It is increasingly difficult to attract and retain high-performing talents in a competitive job market, putting execution at risk for growing businesses. Successful high-growth companies present strong corporate cultures promoting collaborative and innovative behaviour while offering learning opportunities for all, and upward mobility for high performing talent.
Unleash your true potential
In short, companies with unique innovative cultures, supported by strong delivery capabilities and clear market positioning, can unleash the true potential of their distinct value proposition through the right growth avenue, and ultimately create the maximum shareholder value.