Giant sequoia redwood trees grow very tall. Bradford pear trees, not so much. It's all in the genes.
But there’s no genetic code for a business. While a Bradford pear can’t decide to compete with a redwood, a business can become whatever its owner makes it. And that last fact creates two questions we go to sleep asking ourselves and wake up trying to answer:
- Should I grow my business?
- How big should I grow my business?
In his book, Warp Speed Growth, my friend and Brain Trust member, Peter Meyer, lists four fallacies of growth which every business owner should consider. Here they are, each followed by my comments.
Fallacy 1. You can grow out of organizational problems.
In a state of denial or ignorance, small business owners sometimes think getting bigger will fix management and organizational shortcomings. If a tree is bent, fertilizing it won't make it grow straighter – only faster in the wrong direction. If you have organizational challenges, don't grow until they’re resolved.
Fallacy 2. Growth equals profitability.
Yes, increased sales volume can help you improve vendor discounts and therefore, gross margins. But that doesn't mean your organization can manage the extra activity well enough to convert discounts to the bottom line. One of the rudest awakenings an owner can have is when projected sales growth is achieved, but profit is no better, or perhaps worse, than a period of lower sales. Remember Blasingame’s Growth Razor: "It's not what you make, it's what you keep."
Fallacy 3. Profitability improves when every customer is yours.
Being the market leader is overrated. Peter cites research showing only 29% of market leaders were also profit leaders. Not only are you not going to sell every customer, you don't want every customer. Many customers, and some customer profiles, aren’t profitable. Remember, you don't spend sales.
Fallacy 4. If you grow, customers will benefit.
Peter says focusing on growth is focusing on yourself. Every minute your company focuses on itself is a minute diverted away from focusing on the customer. One of the classic examples of a company's self-absorbed focus on growth is when it uses the term "fastest growing" in marketing material, as if this benefited customers. What makes you think customers don't like the size that you are? What makes you think they’ll like your next size?
Don't get me wrong: I'm the last person to say growth is bad, or that you should be happy with the current size of your company. I'm a capitalist, and capitalists LOVE growth. But I do encourage you to make sure that when you grow, it's because you've thought about why and how. Here are six growth reality checks, each followed by a slap-in-the-face question to ask yourself.
• The marketplace is pretty full already. Is there a real opportunity to grow?
• Growth requires capital. How will I fund the growth I am planning?
• The rewards of growth are typically delayed. Can my organization wait that long for the payoff?
• Growth takes a company into unfamiliar operational territory. Do I have the staff and systems to blaze that trail without creating a casualty list?
• Being a business owner should be a source of happiness. Will I be happy with a larger business?
• Every business has corporate values, good or not so much. If our values are good, can we scale them? If they aren’t, why would we scale them?
Ask the growth questions and answer them as Polonius instructed Laetres in Shakespeare’s Hamlet: “This above all, to thine own self be true.”
Write this on a rock ... Just because you can grow your business doesn't mean you should.
Jim Blasingame is host of the nationally syndicated radio show The Small Business Advocate and author of the multi-award-winning book The Age of the Customer: Prepare for the Moment of Relevance.