Latest posts by Lucas Weaver (see all)
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The Importance of Growth as a Business
Why is “Growth” one of the most talked about topics in all of business?
Turn on CNBC in the morning or Bloomberg in the evening and you will most likely hear the word growth at least 47,000 times. Expectations of future growth along with the fear of decay are two of the biggest influencers on stock prices. CEO jobs are won and lost every quarter because one person fails at growth while another shows the promise to bring growth.
But with the focus on growth so prevalent in large publicly traded companies in America, why are so many SMB’s not concerned about growing their business?
Let’s consider a situation in which an average small business owner finds his or herself in. Jane owns a custom window company that sells and installs custom windows. Her revenue for the previous year was $1 Million and the sources of her expenses were about the same as they had been for the past five years. She has a showroom with a locked in lease, she has 1 in-office employee and 2 installers, she buys the windows factory-direct and she spends about $20,000 a year in advertising. If Jane has brought in $1 Million in revenue each of the past 5 years and she’s made enough of a profit to pay herself a comfortable salary, why should she be worried about growth?
A look at the numbers: Average yearly inflation in the U.S. is about 3%. Therefore, if Jane made $1M in 2010 she would actually have to bring in revenue of 1.16M in 2015 to maintain what she did five years prior. That means Jane has to have a $160,000 increase in sales just to keep up with inflation which she has no way of preventing.
Based on this data, Jane will have to increase sales by 3% every year just to keep up with inflation. This doesn’t even take into account internal factors such as wage and benefit increases for workers, and external factors such as rent increases, increases in the price charged by her factory source, or the increase in advertising costs due to rising competition.
So what happens to SMB’s that can’t keep up with these rising costs and maintain what they believe is the status quo? They fail. I’m not talking about the 8 out of 10 new businesses fail within the first eighteen months stat (excluding franchises). I’m talking about the ones that make it out of the first two rounds only to be knocked out in the 7th because they didn’t have the endurance. They get rope-a-doped.
This is not meant to be a doomsday piece. This is a friendly wake-up call from the concierge at the Hilton that you pay too much money not to sound optimistic when she calls at six in the morning. This is a notification of opportunity. Real, scalable, serious growth potential is out there. No matter what business you’re in you can always become better. There is always a service that you can improve, add, expand, or even cut. Don’t be afraid of change, change is how you get better. Don’t be afraid to cut the least profitable area of your business to invest more in the areas that are making you the most money.
So what if you’ve never advertised aggressively before? You’ve built your company into a highly respectable small business through word of mouth and referrals, what could be the harm in promoting that good name and reputation to other potential customers who are already looking for what you do?
Lastly, don’t be afraid to raise prices. How many times have your suppliers raised prices on you? They weren’t doing it because they are greedy. They did it because they are running a business that has to grow and keep up with rising costs to stay alive. You understood why they did it, just as your customers will understand when you do it.
Billy Beane was famously quoted in the book and movie Moneyball saying “Adapt or die.” He was challenging the way the Oakland A’s baseball team and the rest of Major League Baseball had been doing business for years. He challenged the status quo because he wanted to win. Isn’t that why we become entrepreneurs? To win?
We have the choice to not sit back and rest on the status quo. We have the choice to make our coffee just a little bit stronger each day and take the fight to the competition. We have the choice… to grow.