Getting Bigger & Better with True Growth: More Xs & Profit/X

As I’ve been writ­ing my new book 4 Forces of Growth, I’ve worked hard — in dis­cus­sions with dif­fer­ent CEOs and my team — to define ​‘growth’.

Every­one has a dif­fer­ent definition:

Growth through acqui­si­tions, from exist­ing ver­sus new cus­tomers, from extend­ing or adding prod­uct lines, ser­vices or people.

The most com­mon, and worst, def­i­n­i­tion is rev­enue growth.

As the say­ing goes: Rev­enue is van­i­ty, prof­it is san­i­ty, but cash is king.

I have a strong and sim­ple view:

True Growth = More Xs

True growth in a busi­ness is the increase of the pri­ma­ry unit on which a busi­ness is based.

So, if X stands for this pri­ma­ry unit in a busi­ness, growth is when there are more of those X’s.

Here are some examples:

• In a man­u­fac­tur­ing com­pa­ny, it could be the num­ber of units, cas­es, pal­lets or pounds of product.
• In a con­struc­tion com­pa­ny, it might be the num­ber of build­ings, square feet or con­do units.
• In a pro­fes­sion­al ser­vices com­pa­ny, it might be the num­ber of cus­tomers, bill­able hours or staff.
• In a retail busi­ness, it might be the num­ber of loca­tions, or cus­tomer visits.
• In an online store, it might be the num­ber of trans­ac­tions or engaged customers.
• In an SAAS soft­ware busi­ness, it might be the num­ber of com­pa­nies or users pay­ing a month­ly fee.

Prof­it Growth = More Xs &/or a High­er Profit/​X

The oth­er side of the equa­tion is mak­ing more mon­ey on each of those units (Xs) flow­ing through your busi­ness, part of the Hedge­hog con­cept described by Jim Collins: the prof­it per X number.

This is the gross prof­it or prof­it for each of those items.

It’s what I call prof­it prac­tices: the effi­cien­cies, costs and oth­er met­rics that make sure that the com­pa­ny makes more mon­ey every time it makes or sells a unit.

Big­ger & Better

In a tru­ly healthy growth com­pa­ny, it’s grow­ing big­ger (more Xs) and bet­ter (more prof­it per X).

A com­pa­ny that goes from 1000 units a month at $100 of gross profit/​unit to 10,000 units a month at $200.00 gross profit/​unit is a busi­ness in which all of us would want to invest.

The key is to stay focused on both X’s and Profit/​X.

The Prob­lem

The most com­mon sce­nario we see, when growth slows, is that peo­ple focus on effi­cien­cies, costs and prof­itabil­i­ty (Profit/​X).

They lose sight of dri­ving real growth (more Xs) because nur­tur­ing exist­ing cus­tomers or acquir­ing a new com­pa­ny is far eas­i­er than get­ting new customers.

To dri­ve long-term growth, you need to keep enough focus and account­abil­i­ty on X growth.

A Recent Story

This con­cept became very clear when a CEO who talked to me about the rough year they’d had because their growth had almost stopped. But he said was grate­ful they, at least, had 4% rev­enue growth.

When I asked ques­tions, I learned that their price increase, over the last year, was, on aver­age, 5%, and they weren’t crys­tal clear on their units.

The quick math in my head told me their actu­al growth was negative.

Dig­ging deep­er, I learned that the exec­u­tive team was focused on prof­it, and their prof­itabil­i­ty was healthy and ahead of budget.

The sales team were focused on a rev­enue tar­get – and tak­ing great care of their exist­ing customers.

No-one was account­able for dri­ving True Growth: more Xs, more new cus­tomers, more new logos.

With no account­abil­i­ty, ten­sion, incen­tive or report­ing for more Xs, True Growth didn’t and wouldn’t happen.

The Chal­lenge 

• Xs — Get­ting Big­ger: What is your True Growth rate (rate of X growth)?
• Xs — Get­ting Bet­ter: What is your Prof­it or Gross Profit/​X growth rate?
• What might you do to tweak account­abil­i­ty and/​or focus on these?

Oth­er Blogs

• Are You Spend­ing Enough Time on Growth?
• The Four Ene­mies of Growth
• Big­ger vs. Better
• Do Your Team’s Aspi­ra­tions Meet Your Growth Aspirations?

Addi­tion­al Podcasts

• Three Busi­ness Growth Barriers
• The Most impor­tant Num­ber CEOs Rarely Measure