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?

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