There was a time in my contracting business where my company’s profitability needed a big improvement, and we discussed internally if we had to grow, stay the same or shrink to improve profitability. It was a fierce debate about what actually drives profitability. As an entrepreneur, it’s hard to pause growth—even for a year. But it was the right action to take to prepare our company for sustainable success.
Growth is good, unless you’re simply growing for the sake of growth without perspective on the bottom line. Most entrepreneurs love to start things and relish building things, but for some there comes an extreme point where growth becomes an obsession above all else, and profitability is hurt and greatly diminished at the expense of the charge to conquer new clients, products, markets, etc. It can become an addiction. Do you know someone who suffers from this malady?
Symptoms of a growth-without-profit addiction:
- A euphoric feeling connected to number of trucks on the road.
- Assumptions that higher sales will lead to a breakthrough in a profit ceiling.
- When looking at the P&L, the eye goes immediately to the top line, with a bit of distrust when the bottom line number is viewed.
- Assumptions that more sales will heal all company ailments.
- Uncontrollable cravings to beat year-over-year sales numbers.
Consequences of these growth cravings:
- Full efficiencies are not captured.
- Cash flow is strained and suboptimized.
- Problems with staffing and training are exacerbated.
- Branding becomes externally driven and expensive.
Some solutions to counter a growth addiction:
- Benchmarking your company against high-profit companies.
- Top-grading* your staff, focusing on improving vs. expanding.
- Understanding and committing to profit-driven growth vs. sales-driven profit.
- Developing initiatives around internal growth: people growth, efficiency growth, referral growth, etc.
- Embracing a strategic planning process that uses a balanced scorecard.
*Top-grading is the practice of creating a high-quality workforce by focusing on identifying, hiring, promoting and retaining high performers—A Players—in your company at every level.
Specific steps to rebalance your efforts:
- Focus on training existing staff.
- Set up incentives to align production with profit goals.
- Work on production and sales systems this winter to improve and speed up your throughput.
- Show employees how to make more money by improving their own performance and the company’s.
Entrepreneurs are hard-wired to build things and focus on growth. It is not a bad thing per se, unless it becomes an uncontrollable obsession. A savvy leader will understand the need to balance his or her cravings with good systems and strong team members who can push back with a commitment to implementation and smooth operations.
Point of reflection: What type of entrepreneur are you? If you look in the mirror and see someone obsessed with growth, and see a company that’s not capitalizing on its profit potential, consider rebalancing your team with leaders and doers who can focus on and improve your operations.
