Search the Nework website    site map

The NEWORK Centre Level 2 Willbank House 57 Willis Street Wellington Phone 499 1048 e-mail nework@xtra.co.nz

No 38                                                                               November 2004

Business Growth is not Genetic

We hear time and time again that businesses should grow. I think that growth is a perspective thing. Sure we want our business to grow to the point that we can make a sustainable living but not all of us want our businesses to become a company that employs hundreds or gobbles up competitors with take-overs and the like.

What is growth depends on our perspective, but it ain't going to just happen.

Hundreds of years ago, the seed of a giant kauri tree germinated and took root. At that moment, it was genetically pre-determined that this tree would become, well, a giant.

If the germinating seed of a fig tree could know anything, it is that its issue will never be very tall. As trees go, Fig trees are short. It's in the genes.

A tree's growth plan is fairly simple: soak up as much sunshine and water as possible, fight off the pests and the competition, and let genetics take care of the rest.

Businesses are not like trees. Fortunately or unfortunately, there are no genetic codes for our businesses - nothing pre-determined to take us off the hook in terms of how large our organisation should become. Whether our business/company becomes a giant or an ornamental is up to us - the owners.

Yes, there are marketplace factors that influence growth, like capital availability, competition, and general economic conditions, plus our own business acumen and management ability. But these are environmental influences, like food, water, and sunshine, not genetic code.

A fig tree cannot decide to grow as tall as a giant kauri, but in a free-market economy, the size of a business can be what the owner makes it. And for small business owners, that fact creates two questions we go to sleep asking ourselves, and wake up trying to answer:

1. How big do I want my business to be?
2. How fast do I want to get to that size?

There are no right or wrong answers. That's the beauty of a free market economy: It's your business - you get to decide.

But there ARE right and wrong reasons. For business owners, growth is a rope that can be made into a ladder or a noose. With the right business model, capitalisation plan, and effective leadership, you can design and build a rope ladder that you can climb to great heights.

But growth for its own sake is organisational suicide. If you don't believe me, take a look at what happened to the boom and bust companies/businesses of the 1980's and 1990s that created what became a mini depression.

There are two questions more important than the previous two, which small business owners should actually ask themselves first:

1. Do I want my business to grow?
2. If so, why?

Just as you have the right to grow your business, you have the right to limit growth. And believe it or not, the latter is more difficult for most of us than the former. Here's why:

• Entrepreneurs are hard-wired to create more of the object of their entrepreneurialism.
• The culture of the marketplace encourages, recognises and rewards growth.
• The marketplace is nothing if not competitive. And the most prominent by-product of being a successful competitor is growth.

But in the face of all this pressure, small business owners MUST be able to answer these two questions objectively, especially the second one.

Peter Meyer , author of Warp Speed Growth. lists four fallacies of growth. Here they are, with my comments.

Fallacy #1. You can grow out of an organisational problem.

Sometimes, in a state of denial or ignorance, small business owners think getting bigger will fix their management and organisational shortcomings. If a tree is bent, fertilising it won't make it grow straighter - only faster in the wrong direction. If you have organisational challenges, don't grow until you resolve those challenges.

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 organisation can manage the extra activity well enough to convert those discounts to the bottom line. One of the rudest awakenings an owner can have is when projected sales growth has been achieved, but the bottom line of the much-anticipated profit-and-loss statement is no better, and perhaps worse, than a period with lower sales. When I counsel small business owners about their growth plans, I remind them that, "It's not what you make (sales) that's important, it's what you keep (profits)."

Fallacy #3. Profitability improves when every customer is yours.

Being the market leader can be overrated. In his book, Meyer cites research that shows that only 29% of market leaders were also the profitability leader. Not only are you not going to sell every customer, you don't want every customer. Every business has some individual customers, and some customer profiles, that are not profitable. Remember, you don't spend sales, only profits.

Fallacy #4. If you grow, customers will benefit.

Meyer 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 were a benefit for its customers. What makes you think customers don't like you the size that you are? What makes you think they will like the new size you are planning?

I'm the last person to tell you that growth is bad, or that you should be happy with the size of your company. I'm a capitalist, and capitalists LOVE growth.

But I do want to encourage you to make sure that when you grow your business, it's because you've thought about why and how. Here are five reality checks, each followed by a slap-in-the-face question.

• The marketplace is pretty full already. Is there a real opportunity to grow?
• Growth takes cash. How will I fund the growth I am planning?
• The rewards of growth are typically delayed. If we grow as planned, can my organisation wait 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?

Just because you CAN grow your business doesn't mean that you should. Ask the questions! And then proceed based on your answers.

Businesses are not like trees. How big your business becomes is not genetically pre-determined; it's up to you.

Courage Fellow Portfolio Travellers!

One of the most powerful words in the English language is courage. It is also a characteristic unique to humans.

The reason courage is a uniquely human trait is because it is typically demonstrated for something other than self - a cause, a country, another human - which is abstract thinking, also unique to humans. And courage usually manifests itself after the courageous has had time to think about it. Someone once said, "Courage is fear that has said its prayers." If you've had time to pray, you've had time to change your mind.

Courage is certainly not unique to entrepreneurs and portfolio workers, but it is a characteristic very much in evidence in our world. And the abstract that we are willing to fight for is our vision.

When you start a small business, you demonstrate courage. When you persevere in the face of entrenched paradigms and small-minded naysayers, you demonstrate courage.

And what about failure? If you fail - no, when you fail - welcome to the rarified air of the courageous. Since you can't fail if you don't try, only the courageous can know failure.

© 2003 The Nework Centre   |   email neworknz@yahoo.co.nz

Top of the page