All businesses want growth. They aspire to become bigger, better and popular. Want to make a difference to society? The larger you grow, the more your resources and connections. Want to provide gainful employment to more people? The larger you grow, the more employment you can give. Sure, there are other ways to make that happen. But the single largest factor of the difference you can make, is the size of your business.
While every business wants to grow, its often difficult to quantify that growth. What percentage growth is good? There’s no one answer. Yet there are some high-level indicators you could use to check the goodness of your growth.
Indicator 1: Greater than GDP growth
Good growth is better than GDP growth. For example, some companies use the rule of 3. Your growth should be at least 3 times the GDP growth. Anything more and you have beaten market expectations. Anything less and you have underperformed the market. You can slice and dice the GDP numbers to see which are the most comparable to your industry. Growth should be above that of your industry, or at least at par. Growth of your industry/sector, is difficult to estimate. Proxies such as growth in the number of competition employees, or their offtake from common suppliers are good comparators.
Indicator 2: A Happy ecosystem
Growth should keep you and everyone else happy- or at least not sad. Why? If everyone’s happy, it indicates asustainable eco-system. If suppliers are not happy with payment timelines, chances are they’ll drag their feet on the next order. If a customer feels cheated, they’ll move to available alternatives. If employees have substantially increased work pressure with increased growth OR their growth in the organization is out of sync with business growth, performance will be sub-par. Long story short, it pays to keep everyone happy with your growth for it to be sustainable.
One warning – differentiate between inertia and happiness. Everyone’s happiness shouldn’t be at the cost of future growth. Many companies showed excellent growth, with all stakeholders apparently happy. Suddenly the ground opened beneath their feet. They were too content with the current situation. Nokia is a great example. They moved from being a fast-growing company with happy employees to next to nothing in a short period.
Indicator 3: Consistent Growth
Consistency is important. Other than expected or explainable seasonality, there shouldn’t be troughs or peaks within or across years. Inconsistency is bad. You swing between understaffing (hunting for employees) to overstaffing (underutilized employees). You swing between periods where suppliers want to dump stock and where you want stock suppliers can’t / won’t provide you. Roller-coasters are fun, but not for your business.
Indicator 4: Profitable Growth
Profitability should not take a beating at the altar of growth. Selling at the cost of margins is an easy game to get in, but very difficult to get out . Unless you were pricing at a premium and are reducing the premium due to the product/service life cycle, don’t use price as a lever to spur growth.
Some of the ecommerce businesses are examples of how not to do it. Growing at the speed of light and losing money at a similar rate. It could be argued that valuations of some of these loss-making companies is through the roof. But those are the exceptions rather than the norm. The private equity players bought into Flipkart assuming they would sell to a larger player. And they found one in Walmart. So, unless you are looking at playing the valuations game (or have very deep pockets!), a general rule is to never lose money on a sale.
Indicator 5: Knowing why you grew
It’s easy to celebrate good growth. And why not? Yet, it’s critical to understand and analyse reasons for growth. If there’s no answer, the growth is not sustainable. It is also crucial to analyse flat or negative growth. This normally happens at a superficial level and often results in a blame-game. Sales personnel not selling, GST implementation etc. etc. Yet, try to go beyond the surface while analysing poor growth. Separate controllable and uncontrollable factors. And plan and implement interventions in the controllable factors.
Some businesses take a conscious decision to grow slow. Slow growth allows for a personalized experience for customers and (possibly) better quality of life for the promoters. Yet, be wary that it’s not a symptom of inertia or conservatism. Some big names have gone under by not moving fast enough and responding to market needs. Not planning and executing every day is the biggest risk.