Does a business always have to be growing?
Growth or Profit?
When I first came out of college and got involved with my first small business I would often ask the owner why he did not want to grow his business. His simple response always revolved around some metaphor about cows on a hill and waiting to be the bull or something like that. It used to drive me crazy! When you are young and fresh out of school you head is filled with all these ideas about how you can make any business better by simply applying what you learned from your text books. You think the sky is the limit and that growing a business in the fastest possible manner is they way to make real money.
Then one day you wake up….
The reality is that not all businesses need to be big to be profitable. The other side of this is that not all big businesses are profitable either. A great example is one of my companies that I started in 2008. When I first started it my forecasts showed unlimited income potential as long as I processed high levels of inventory (online product sales). After a disastrous 2009 I came to realize that I was trying to be bigger then the market would support. I was spending all my income and then some on trying to grow to an unsustainable level. When I sat down and reasonably looked at by cash flow I was able to develop a strategy to downsize to profitability. If you would have told me in college that I was going to have to keep my business small to make money I would have never believed you.
I often review business plans with amazing projected growth rates. This always bring about the question – what is your sustainable profit rate? No one ever seems to know the answer to that. They instead want to show me a pretty little chart with upward climbing profits (and expenses). The reality is that in many cases there is a level by which you can derive significant profit with out having to continually grow.
Would a company that turns out $20,000 a month on 20% margins make you happy? What if I told you that if you increased sales by 50% that your margin would shrink to 8% thus causing you to make less money overall? What would you say? Would you tell me that my numbers are wrong? Would you think I didn’t plan properly? Well the truth is that these numbers are real and relate to one of my companies. You don’t have to grow a business to profit from it.
One of my most popular business consulting services right now is growth management consulting. If your business could use a little help I’m always here. Drop me a line and let me know what I can do to help.
Marketing with Roger