For sustainable fast growth your business needs a pipeline of new opportunities for the future.
The Hare and the Tortoise?
Good growth on the other hand is sustainable profitable growth that focuses on improving return on investment, not just sales or profit.
Get daily business news.
The latest stories, funding information, and expert advice. Free to sign up.
Many leaders of SMEs don’t understand that ultimately their role is to create a return on investment for shareholders, customers and staff. It’s about taking a dollar today and turning it into two dollars tomorrow.
This means that in addition to growing sales, they need to grow margin (NPAT/sales) as well as velocity (sales/capital employed), improving capital efficiency and reinvesting cash in new assets and capabilities that will grow shareholder value in the coming years.
(Ignore this at your peril! The dot-coms and the Asian economic crisis are good examples of leaders and investors that forgot about ROI in favour of size.)
Margin and velocity are continually under pressure because of competition and changing consumer tastes and sales, which threatens ROI and shareholder value.
The key to being able to maintain these measures at acceptable levels, creating sustainable growth, is to create a pipeline of new, high margin business opportunities, each one capable of complementing or replacing the existing business, over the medium to long term (but all of them aligned to where the organisation ultimately wants to be).
However, creating a pipeline of opportunities means that leaders must be able to balance the profitable management of today’s core business with the demands of potential new businesses that may not hit the market for years.
Regardless your size, a core determinant of its ability to deliver sustainable growth of shareholder value is the ability of its leaders to manage the organisation concurrently across short, medium and long-term timeframes.
Successful leaders are able to maximise and grow their core business in the short term, so that it can fund the emergence of new businesses and revenue streams in the mid term, and creating new technologies, resources or capabilities through research in the long term.
Organisations maintaining sustainable growth also demonstrate three other undeniable qualities.
- Leadership (board and executive) with an ability to develop and execute strategy.
- Commitment from staff, customers, suppliers and partners for their strategies.
- Focus on building the capabilities of the organisation that will help it exploit new opportunities.
They have also developed a keen insight into the changing needs of their customers as well as industry and market evolution.
Entrepreneurs capable of sustainable growth look from the outside in, identifying new needs or creating outcomes for new and existing customers and using their newly created skills and resources to create new products and services that satisfy important but unmet needs.