Growth

What is Growth and Why Does It Matter?

Listen in on discussions in almost any office and no doubt you’ll hear the word ‘growth’ come up in conversation, but how many of us know what the term really means?

Many business leaders cite growth as one of their key objectives, but this is a word that isn’t as simple to define as it might first appear. This month, we’re going to delve deeper into what growth really means in business, with a four-part series of articles defining growth, and exploring the tools and skills companies need to make it happen.

Growth can mean several things in business, and it’s entirely possible for a business to expand in one area whilst another important growth metric actually decreases. And that’s not necessarily a bad thing.

Imagine if your customer numbers decreased, but the customers you retained ordered three times as many products. Your business would still be growing, and profits would be on the up – even if customer numbers were tumbling. This is just an example of why growth can often be tricky to define.

This first article in our growth series will discuss what growth really means, and why it matters – particularly for small to medium sized enterprises.

What does growth actually mean?

Growth can be defined in a number of ways, and how a business prioritises these factors depends on its own individual objectives. The main metrics that businesses typically consider are revenue, sales, profits, the value of the company, profits, customer numbers and employee numbers.

Of course, the figures that immediately draw attention here are revenue and profit. However, people often get easily blinded by impressive revenue growth but considering this in isolation is dangerous ground. Growth is not that simple. It’s complex and needs to be looked at holistically. Revenue must always be considered in conjunction with profit, as an increase in revenue doesn’t necessarily equate to an increase in profits.

Loss-making in growth strategies

It’s completely natural for companies to make a loss, as a considered part of their growth strategy. Take ambitious startups, for example. Often, startups with huge aspirations put all of their time, money and energy into increasing the numbers of customers that they have. The result of which might generate substantial losses. But these losses don’t mean that the company isn’t growing. If awareness is on the rise, and customer numbers are increasing, the startup can still be said to be in the early phases of growth. Before long, revenue streams will start to pick up and all growth metrics will be heading in the right direction.

Uber is a prime example of this trend. The company reported revenues of $11.27bn for 2018, and a loss of $1.85bn. Despite this loss, the company priced its initial public offering at $82.4 billion, in May this year. The company is spending vast amounts of money in order to expand its market share and introduce innovative new business ideas, like self-driving cars and deliveries. Uber has made losses consistently throughout its 10-year lifespan, and doesn’t look likely to become profitable in the near future. However, its losses are falling over time, and the potential of the company remains an attractive prospect for many.

The growth patterns of startups determined to disrupt the status quo are of course not typical of most businesses. More conservative companies are far more likely to benefit from growing their revenue slowly and carefully, avoiding huge losses in the early years of operation. Quite often, financial backing dictates the speed at which a company is able to grow. If a company is bootstrapping, then its rate of growth will be far slower than that of a startup supported by wealthy investors. 

Why does growth matter?

Growth is a key way in which businesses measure their success, and its importance should not be overlooked. Whilst some companies are content to operate a more static, passive way, the vast majority of organisations cite growth as one of their main objectives, every single year. As a result that means that even the most stable businesses cannot escape the threat of competition. In order to cement a company’s position at the forefront of its sector, growth is essential.

Businesses need to focus on growth in order to withstand threats from competitors and overcome any challenges that new companies might throw their way. In figures published this January, it was revealed that a record-breaking 660,000 new businesses were registered in 2018, a 5.7% increase when compared with figures from 2017. With so many new companies being established all the time, even the most successful businesses need to keep an eye on their rivals.

Competitors won’t just take your profits, they might take your team too.

Companies that stay small risk losing out to competitors, most obviously in terms of sales, profits and missed opportunities. But another risk that businesses must be aware of is the likelihood of increasing numbers of successful companies in their sector recruiting top team members. Should a rival business perform well, ambitious members of staff might be tempted to move over to its team in order to further progress their own careers.

Recent research by Ceridian found that over a third of workers are searching for a job either actively or casually, all the time. Therefore, in order to keep staff motivated and loyal and avoid expensive recruitment and training drives, companies need to put in place a variety of measures including career progression opportunities that meet the expectations of their staff. And those opportunities are incredibly difficult to offer if a business has no plans to grow.

Growth and innovation go hand in hand

In today’s digital age, businesses are increasingly on the hunt for innovative new ideas that could see their companies expand. The early adoption of cost-saving, efficiency-boosting ideas is absolutely essential to a business’s ability to succeed, yet many of these innovations will require significant investment in terms of both money and time.

If a business doesn’t grow, then it’s likely that it won’t be in a position to embrace any new opportunities that cutting edge technology, new supply chain processes or cost-effective logistics options might offer. Of course, you can bet that ambitious rival companies will then be snapping at their heels, leaving the static company even further behind.

Even the most loyal customers can easily be tempted by a new brand offering more affordable, or more efficient versions of the product or service that they love. So, it’s crucial that businesses do all that they can to ensure that they’re able to maximise the potential of any opportunities that might arise.

Businesses should be concentrating on the ways in which they can improve their customers’ experiences, in order to increase numbers of customers and cement their brand loyalty. If your company doesn’t make use of the opportunities available to the sector, there’s little doubt that a competitor soon will.

Summary

In conclusion, growth is one of the most talked-about terms in business, but it’s important that we define what we really mean when we talk about growth. Many metrics relating to growth can provide great insight into the success of a company, but when looked at in isolation typical growth metrics can give a distorted view of a company’s potential.

Whether a company dedicates all its time to boosting revenue, it focuses entirely on increasing customer numbers, it looks to expand in terms of staff numbers or it’s on the hunt for new markets and undiscovered opportunities, it may well be growing. But it’s critical to look holistically whenever considering growth. Only by doing so can we ever really understand what each individual metric means for the business as a whole.

A company doesn’t need to increase every single growth metric simultaneously. Many very successful companies have entered growth phases whilst other metrics decreased. As long as a company has a clear strategy and a concise set of objectives, growth could soon be on the horizon.

The importance of growth should never be underestimated, no matter what a business’s long-term objectives might be. In order to retain customers, embrace innovation, provide for staff, create jobs, grab new opportunities and beat the competition, growth is crucial.

Next time

Keep an eye on our blog to learn more about growth in business. Next we’ll be taking a closer look at the different stages of growth, and examining the distinct challenges and opportunities that these common stages present. Meanwhile, if you’d like to learn more about the positive changes your company can make to grow, get in touch with our team.