Talking about growth in an uncertain economy can be a short (and unsettling) conversation. Oftentimes, that’s because we see growth as synonymous with top line revenue. But that view is too limiting. When dangerous economic variables grow exponentially, flexibility, smarts and grit will take us a long way. And, with some art for good measure, we may even take advantage of the disruption, rising out of a downturn as a stronger, more competitive concern.
But it begins with a flexible outlook: one that examines the many facets of growth to find those which are still strategic, attainable goals for our organizations.
We all know growth is important. If we fail to add new clients, attrition will slowly destroy what we have built. And even if revenue stays at the same fixed point year over year, annual increases in salaries, benefits, vendor contracts and the like will ultimately dip into our profit and put us at great risk of going out of business.
So, growth is vital. But what kind of growth is vital right now? Apart from revenue, areas we can target for growth include profit, number of clients, the strength of client relationships, brand awareness, product offerings, partnerships and more. We really need to determine which improvement will best position us for the future.
For example, Microsoft, Google, Cisco and Zoom have all recognized the enormous, immediate need for video conferencing, as schools and businesses rapidly adopt social distancing measures. But, the technology companies also know that now is not the time to focus on driving revenue. All four organizations are generously offering their platforms for free. This is a sacrifice. And I am in no way lessening its positive impact or the thanks we owe them. However, through this generosity each company is also growing their user bases at enormous rates. When life gets back to normal (and it will) all of these companies will benefit from society’s mass adoption of collaboration technologies, combined with a loyal user base to sell to.
These companies are doing the right thing. Sure it comes at a cost, but they also understand which aspects of growth are most important today to position them for success tomorrow.
I saw another example of this several years ago when I was working with a small, entrepreneurial services company. They had done a great job of growing regionally and in recent years had expanded out of region. Their leadership team was dedicated, smart and hard-working, but none of them had experienced this kind of geographic scaling before. Each milestone of revenue growth was new territory for them. As they passed the 6M mark, the broadly dispersed services organization began to have an adverse effect on profit. Expenses grew at a rate that outpaced revenue. By the end of 2014 their EBITDA was less than 2% and they had a net operating loss.
In order to recover, we collaborated on a strategic plan that helped address, in a very metrics driven way, the operational expenses that had grown too quickly. Payroll was the biggest overage—no surprise in a service company. But we found four other expense categories that had grown at unhealthy rates: travel, advertising, IT, and consultants.
Their team put in place an aggressive plan to streamline expenses in each area over the course of the year. They took 2015 and used it to grow the financial health of the organization, and it worked. At the close of the year revenue was flat, but EBITDA came in at 12%. Continuing that work in 2016 they reached over 19% EBITDA, despite another year of flat revenue.
The organization had really focused on tightening up its operation. In doing so, it developed a solid foundation from which to focus on driving revenue in the years ahead. The growth they needed in 2015 was growth in profitability, and by focusing on it they set themselves up for future success.
I share these examples to make one point….
The definition of growth at different moments in time should be fluid.
These are no ordinary times. The market is volatile and the variables will continue to change daily. Nevertheless, growth is still vital to our collective ability to press on though today’s challenges and into a healthier future. The more we have engaging conversations about growth and the right type for our organization, the better our chances of emerging stronger in the long run.
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