Bigger vs. Better: What is Real Growth in a Business?

Late­ly, I’ve been hard at work writ­ing my upcom­ing book about sus­tain­ing growth over the long term. But the ques­tion remains: what is real growth in a busi­ness? I dove into the top­ic with one of the CEOs we sup­port. We asked one anoth­er: is it growth in gross rev­enues? Growth in gross mar­gins? Growth in prof­its? Or some­thing else altogether…

After some great debate, we came up with a very sim­ple answer:

Real growth is about adding more of a crit­i­cal eco­nom­ic unit in your busi­ness: Your num­ber of wid­gets, trans­ac­tions, sub­scribers, loca­tions or what­ev­er it might be.

Improve­ment is more about gen­er­at­ing more gross prof­it or prof­it on each of those units that move through your organization.

In my new book, this is ref­er­enced in the Four Forces of Growth mod­el. Real growth hap­pens in the upper right quad­rant, and it is very easy to get pulled down into and spend almost all of our time and resources on improve­ment. You need to have both.

In most orga­ni­za­tions, this is the major eco­nom­ic dri­ver of the busi­ness. If you are:

• • A man­u­fac­tur­ing facil­i­ty, it’s the num­ber of wid­gets you make
  • An auto­mo­tive busi­ness, it’s the num­ber of cars or vehi­cles sold or serviced
  • A soft­ware com­pa­ny, it’s the num­ber of cus­tomers or users
  • A pro­fes­sion­al ser­vices firm, it’s the num­ber of clients or hours billed or team members
  • A retail­er, it’s the num­ber of cus­tomer vis­its or cus­tomer transactions.

Essen­tial­ly, it means you serve more cus­tomers and/​or end users, as the orga­ni­za­tion becomes a big­ger and bet­ter enterprise.

Growth is big­ger; improve­ment is better. 

The improve­ment quad­rant (above) is a very impor­tant zone. But it can be dan­ger­ous. Peo­ple can get lost when they think they’re grow­ing their busi­ness, when, instead, they’re improv­ing their effi­cien­cy and grow­ing their returns — which, by the way, is a good thing. But it means the orga­ni­za­tion is bet­ter — not nec­es­sar­i­ly bigger.

Ide­al­ly, you want both.

Accoun­tants and finan­cial peo­ple – who I love and are crit­i­cal to suc­cess – often have a stereo­typ­i­cal mind­set to always focus on improve­ment: bet­ter effi­cien­cies, bet­ter qual­i­ty, few­er mis­takes, bet­ter gross mar­gins, low­er oper­at­ing costs, over­head as a small­er per­cent­age of sales, low­er staff turnover, low­er total peo­ple cost as a per­cent­age of sales, etc.

And while these are crit­i­cal, and can dri­ve up the prof­it or even the mar­gin, they are foun­da­tions for growth because they relate to how good of a job we do.

Growth is more of a crit­i­cal unit in your business. 

Improve­ment is more about gross prof­it or prof­it on each of those units.

Both are impor­tant and very sep­a­rate focus­es and activities.

The key to con­sis­tent­ly grow­ing a busi­ness is to grow both. Don’t make the crit­i­cal mis­take of only focus­ing on improve­ments because you will end up with an incred­i­bly well-run busi­ness that does­n’t scale.

The Chal­lenge

• Do you have tar­gets in your strate­gic plan for both growth (more Xs or key units) and improve­ment (more gross prof­it or prof­it per unit)?
• Do you have enough of your — and your organization’s — time and ener­gy focused on growth?

Addi­tion­al blogs

• The Four Forces of Growth
• Do Your Team’s Aspi­ra­tions Match Your Growth Aspirations?
• Three Bar­ri­ers to Busi­ness Growth

Old Pod­casts

• The Four Forces of Growth