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

Old Podcasts

Lawrence & Co’s work focuses on sustainable and enhanced growth for you and your business. Our diverse and experienced group of advisors can help your leaders and executive teams stay competitive through the use of various learning tools including workshops, webinars, executive retreats, or one-to-one coaching.

We help high-achieving leaders to have it all – a great business and a rewarding life. Contact us for simple and impactful advice. No BS. No fluff.