Strategy: For SMEs it’s all about growth…or is it?

Even if you’re not a fan of the doughnut economy concept, there are several parallels with the evolution of smaller companies that are worthy of reflection.

Naturally when you are starting out you want your company to grow. You need to recover your investment and show that that your offerings have their rightful place in the market. Growing your customer base as well as the range of your offerings are both signs of success.

However, is the concept of “growth” especially “revenue-growth”, the best indicator of a thriving and successful company and does it deserve to be uppermost in your plans and decisions? The answer is of course “it depends”, but on what does it depend?

When you founded your company no doubt you set out to achieve a goal, maybe to make a difference, make money, or set out on an adventure. The reasons will be wide-ranging but at least clear in the founder’s mind. Less well-defined is the timescale you had in mind to achieve your goals. For some this can be counted in decades, other years at best. Some people want to see their name in lights, others peer recognition, or simply to be able to cash-in when the time is right. Some people auto-financed their new venture, others took loans or attracted venture capital. All of these decisions will impact your “depends” as they will your” Acquisition Attractiveness”, desired or not. So where does this super driver “revenue growth” come into all of this?

Let’s look at 2 ends of the timeline spectrum, at one end someone thinking in terms of decades and the other, a few years. For our long term venture the founders aspire to develop a lasting market presence; the others, to sell-out when they can get the return they want. Let’s see how revenue-growth targets has helped them.

For our first scenario, you want to build a solid and lasting enterprise, and early sales are strong and revenue is growing..life is good!, until revenue growth starts to tail-off, almost as if you have drained your sales opportunities pool, which you may well have done. You start to drop prices to kick start revenue growth, hitting your profitability and your ability to investment in line extensions. Life is no longer so good!. What happened to the long-haul vision? Every product has a commercial life-cycle, but the long-term is about successive generations and diversification, more than quarterly growth indicators. There are therefore many more suitable metrics on which to base your business decisions on than revenue growth.

At the other end of the spectrum, you may expect that short-term revenue growth is exactly what you want to be demonstrating. However, your acquisition attractiveness depends on many more factors than revenue contribution to the potential buyer. When we developed the Mbrace Acquisition Attractiveness workbook, we identified what we saw as the commonest reasons for acquisitions amongst them, bringing access to new markets, or simply to remove a competitor. Once identified it is a short step to identifying potential acquirers. This invaluable insight allows companies to improve their attractiveness as part of their corporate plans, effectively embedding their exit strategy into their commercial strategy. Following this approach allows companies to develop their technologies or services in a direction that has a sole objective, to maximise the number of potential acquirers and therefore their negotiating position. This is a long way from only tracking revenue growth.

An over-dependence on continuous growth can encourage unwelcome short-term thinking and ill-aligned decisions. Growth is good, but don’t let it run the show!