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:
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- 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
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- 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
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