You need to make a profit to stay in business, but focusing on growth makes that more likely to happen, not less likely.
For decades, I have been accused of being overly-preoccupied with business revenue growth versus the bottom line. Zweig Group even hands out awards each year for the fastest-growing firms in the AEC business. Sure – you need to make a profit to stay in business. Survival is a mandate and no one has unlimited capital. But I have found focusing on growth makes that more likely to happen, not less likely!
Here’s more on why I AM all about growth:
- Growth makes it easier to be profitable. I never set profit goals for any business I owned. I did set revenue goals, however, and pursued them relentlessly. Costs creep up over time. My experience is that if you try to stay the same size, you will find yourself in a situation of declining profitability. I would rather increase the top line than cut costs any day.
- Growth makes the business more valuable. Everyone who is inexperienced at mergers and acquisitions wants to talk multiples of EBIT when it comes to value. That’s great for stable companies in mature industries. But for everyone else, value is based on projected future growth, and historical growth rate is the best indicator of that. All you have to do is look at tech company valuations to know this is a true statement. Some are worth billions before they are ever in the black.
- Growth is how the employees do better. It forces them into expanded roles. It creates promotion opportunities. It keeps them learning and growing. Growing firms push their people into roles they aren’t qualified for. And that is how your people can grow!
- Growth keeps everyone interested (and motivated). Growth is exciting and spurs on more growth. Shrinking is depressing. Growth is exciting. That extra bit of motivation across your entire firm may be all it takes for your firm to beat all of your competitors!
- Growth is an indication the market likes what the business is providing. That attracts more clients and customers. And that makes for even more growth. It’s a virtuous cycle of growth!
Two more important points: Before someone tells me once again that profitability is more important than growth, let me add that I have seen a lot of companies in this business that are overly concerned with making a profit on every single project. I prefer looking at profitability by client. It’s a better perspective. Sometimes you have to do things in the name of a client relationship that are more important. Don’t let the nickel get so big it hides the dime sitting behind it.
Secondly, top management needs to be managing costs so the firm can make a profit with whatever revenue it has. I have learned it is easier to do that when revenues are constantly growing and overhead costs aren’t growing as fast as the revenue is. That means management needs to be decisive and quick to react. AEC firms aren’t always known for that.
So yes – growth is THE goal for any entrepreneurial business owner!
Mark Zweig is Zweig Group’s chairman and founder. Contact him at mzweig@zweiggroup.com.
