Often, before I work with a company on strategic planning, I
ask the owner or CEO what success would look like for him or her. This simple question has been the source of
some great soul-searching over the years.
One of my earliest clients answered – very quickly – that he wanted
sales growth. We created a plan that
delivered that, and then some. The
company nearly doubled in size in a short period of time, but the next time we
did strategic planning, the owner told me he wanted more profit – even if it
meant slowing down growth. This is not
unusual – and many people try to pretend that there isn’t a trade-off. While it is true that both profit AND sales growth
are possible simultaneously, it is much, much more likely that you will experience
one or the other.
Here is why most companies experience either sales growth or
profit growth: customers aren’t
particularly interested in either of these things for you. Customers want the best deal on the best
products and the best services with the most features and the most
convenience. Try to do all those things
at once, and you are going to lose money – unless you have a magic recipe
somewhere (and granted, it’s possible, but much more rare than most gurus would
have you think). So…we can sell MORE to
customers if we give up a little – or we can sell LESS and make more
money. Your competitors have the same
deal going on – some may have special know-how that enables them to wiggle
about a bit in this equation, but every company runs into this wall, sooner or
later.
A few years back, I analyzed the results of dozens of
companies that I’ve worked with, and this tendency became very clear: the top performers in sales volume growth
were in the bottom quartile in profit growth, and vice-versa. I find this result a little surprising: most of us assume that overhead absorbtion
creates an economy of scale as you get larger.
The problem with this assumption is that size attracts – you guessed it –
competition, and so there is a higher need for investment and the overhead that
comes along with it as you get bigger.
In other words, for most companies, there is no magic size you can reach
where you are not going to be beset by competition. If you don’t believe me, take a look at
companies like Apple and Exxon-Mobil.
They make great money, and they are huge, but they have to invest
heavily to maintain their position because a big company is essentially a HUGE
target for competition.
So here is a question for you – would you like to see super
high growth in sales or profits – or would you be happy with mid-range numbers
in both? If you can make a clear,
focused choice, you will be far ahead of your competitors.
