So you’ve gotten your business off the ground. The clients are rolling in, and it feels like all there is left to do is give your team a pat on the back for all they’ve accomplished. But as soon as your foundation is set, the question of expansion is already on the table. Even a thriving company can end up sinking for a lack of acceleration.
You may have read up on the growth vs. profitability debate. Since time is your most precious commodity as a business owner, you may be feeling the pressure to pick a side. On the one hand, sustained growth can get you closer to market dominance and a place at the top of your industry. On the other, staying profitable means you’re efficient and a bit more measured in your ascent, giving you a stronger foundation on which to build. As you may have read, the merits of each are the source of some serious controversy.
A quick Google search will give you an idea just how powerful this difference of opinion is amongst prominent business thinkers. Equally powerful arguments exist for growth over profitability and profitability over growth. Considering the importance of each, it’s strange to think that so many minds consider these two forces oppositional. In fact, not only is it possible for your company to embrace both: it’s a necessity for survival.
You don’t need to pick a side, because knowing both positions will equip you and your business with the mental capital to strike your organization’s optimal balance of profit and growth.
Advocates of the profitability path frequently couch their claim in business fundamentals. “You’re here for one reason,” they’ll tell you, “to make money.” This means performing your core competency with maximum efficiency. Staying lean has many merits, and it doesn’t negate growth: it simply makes it more sustainable.
If you’re in it for the long haul, extensive research has shown that higher-earning companies have historically been the ones who placed greater emphasis on profitability over short-term growth. Despite high-profile examples of growth-oriented success, it’s important to remember that corporations like Facebook or Amazon are only a few out of thousands. Sure, everyone wants to reach for the stars, and they should. But in terms of fundamentals, big risks could mean big losses.
At the same time, it’s not just once-in-a-lifetime multi-billion dollar companies that benefit from rapidly scaling up in their formative years. In many ways, current market conditions favor growth. As the cost of debt and equity lowers, so too does the risk element, and choosing growth over profitability becomes a lot easier. The recent beneficiaries of aggressive growth strategies are many, and just about any Internet-based startup you can think of—from Google to Groupon—went growth-first before rising to the top.
A close look at the books and market conditions will show you how much growth needs to guide you, in any case. The more competitive your industry, the more an emphasis on growth will keep your head above the rest. It’s all a matter of reading the situation and choosing the balance that works for you and your company.
The Best of Both Worlds
While maximizing both factors simultaneously is a tall order for many companies, a measured approach that balances the pursuit of profits with expansion is worth the time and attention. It may not be the most clear-cut tactic, but it’s the real way to keep the money coming in steadily while also increasing your piece of the overall pie. In support of my own experience at Leonis Partners are scientific studies that prove a failure to accommodate both growth and profits into your business plan will leave you wanting. No business is the same, of course, and figuring out this balance will be a multistep process.
I’ve seen too many businesses fall by the wayside as their leadership played the big-growth game as though it were a high stakes game of poker. On the other hand, those too focused on profitability over expansion often find themselves stuck when it comes time to scale up, simply because they have no idea how to do it.
Entrepreneurship isn’t a zero-sum game. In fact, it’s not really a game. A measured approach—one that takes good stock of where your company stands and adjusts accordingly—is the way to grow a business without letting profits fall by the wayside. And though an all-in mentality has its place in many aspects of business, when it comes to the growth-profitability debate, a spot on the proverbial fence isn’t such a bad vantage point.