Growth or Profitability?

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By Ismael Pantaleon

shutterstock_457572442It shouldn’t be a choice, right? After all, if we are in a business, we want to make money and be sustainable in the future. The way to achieve this is by increasing revenue and obtain a surplus after all expenses are considered.

But what appears as an obvious and a somewhat silly question, is actually a recurrent situation for many enterprises. If we look a bit more closely to understand this, we will find that it is not surprising that companies will pursue growth over profits, and will have trouble understanding the complexity of achieving both.

The reason for this is that all businesses have as a first priority to SELL, SELL, SELL. A company is born when its founder is convinced that she can offer a product or service that somebody else will be willing to pay money for. In this first stage, the founder will put her focus on perfecting her offer, determining its target market, polishing the necessary plan to provide it in the best way to her clients, start selling and get satisfied clients who will repurchase.

As the company progresses, it will need to incorporate new people to cover different functions. The team starts to grow, although the owner continues to take all decisions. There is a high level of energy to go get the market, and all players are involved in whatever it takes to grow the business, with unclear limits to functions and responsibilities. This makes the operation agile, and allows sales to increase in a dynamic management mode. Communication within the team is easy because there are few players, the owner is directly involved, and decisions are basically taken by her.

In this mode, the founder will look for new alternatives to grow and to continue satisfying her clients. She will start to consider new product or service lines, new target clients, new geographies, and investments. There will be many clients to pursue, and some of them will appear to be key to continue growing revenue. So she will instruct her sales team to do just that: sell more and ensure client satisfaction.

Dr. Ichak Adizes calls this stage the Go-Go stage. In his words:

If you ask leaders of Go-Go companies how business is going, they typically answer, «Great! Sales are up 35 percent.» If you ask about profits, they are less expansive «Gee, I don’t know. Ask accounting».

 As the company becomes more complex, production and administrative costs will increase, and a tendency to lose quality will come at the same time as the client base expands and becomes more demanding. Each function will focus on its tasks, and slowly lose focus on the overall vision of the enterprise. In this environment, it will be easy to ignore that maybe the business is not generating the bottom line it should. Moreover, the mindset shift of revenue goals to profit goals will be very complicated because the organization grew with a different mental model and because each function will start defending its turf.

At this point, it will be key to generate a new and systemic understanding of the business. What used to be clear has been lost through time, different people and practices, and new market conditions. There is a bunch of people managing the company, but they are far from sharing a vision, and have new needs related to making decisions. Empowerment is required, but it will be useless or even negative if it is not aligned with the overall purpose of the business and a clear understanding of the organization’s dynamics and interdependencies.

Systems thinking together with innovation methodologies can provide the tools managers need to obtain this new perspective, make better decisions and align their teams to generate solutions in a shared forum. This can be very powerful as it allows stakeholders to share their perception of reality, and together reach a better understanding of the whole. An added value is the energizing and motivating effect the process has over participants. It allows them to be proactive in front of complexity, and enables them to work together with a new comprehension of the challenges. Key questions like how to achieve growth profitably could be the starting point to a deeper understanding of the underlying forces of the company. They could also represent the beginning of a better and more satisfying way to work in it.

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