We hear it all the time.
Creating consistent growth is a common challenge in business - one with many moving parts. Most (if not all) business owners and leaders we speak with aspire to growth that's relatively predictable, repeatable and of course consistent - in a word, sustainable.
Which isn't really a surprise.
In this Insight, we explore why it's an important aspiration, and how to go about creating the right framework to make it happen.
First though, let's be clear about what's meant by "sustainable" growth. The term was originally coined by Stanford University's Robert C Higgins whose ideas focused on growth that doesn't create undue levels of debt, with target profit margins and dividend payout ratios. He went much further, creating a sustainable growth formula that you'll find in any business or economic text book you care to reference.
It becomes pretty complicated - if you let it.
So to keep things relatively straightforward, we suggest focusing on the three words we used at the outset:
predictability;
repeatability; and
consisten
Think about it as growth that lets you sleep at night. Or as one of our clients put it, "makes you feel safe".
Who's asking the question?
The events of the past couple of years has triggered the realisation for many business owners and leaders that growth is, for want of a better term, "fragile". Or maybe it's reminded them. Either way, the reality is now starkly evident.
Those most urgently asking the question come from a place where volatility of growth has been significant. Where every lockdown led to an initial and often large negative hit to growth rates. In time, either through waiting out the storm or moving into new products and/or markets, growth bounced back. For some, that bounce back was significant, with reports of growth rates at highs never seen before.
Those rates may or may not be sustainable.
It's been a pretty wild ride.
Another factor at play right now is the massive amount of M&A activity going on in the market. Everyone we've spoken to in that space reports they've never seen activity so high in Australia as it is right now. Put it down to cheap money and deep FOMO.
Back to the question: who's asking?
There's three key groups with a heightened fascination for growth that's sustainable and with a determination to create the framework in their business to make growth less volatile in future.
They are:
owners/leaders with the sale of their business on their minds: there's no doubt about the value prospective purchasers of a business place on quality growth. One measure of quality of growth is its sustainability. Nobody really wants to buy a business showing huge swings in growth over time...it's just too much trouble when there are other options on the table. We've seen heightened interest from members in this group who are in their 50s, because they're starting to think about life beyond 80+ hour weeks;
others who've completed a merger or acquisition and now want better results than they're seeing from the transaction: a large proportion of M&A activity is driven by potential for the post transaction entity to deliver superior growth compared than the total growth from each of the pre-transaction operating alone. It's the usual "one plus one equals three" integration benefit. Sadly, research (HBR & Forbes) suggests that up to 90% of M&A transactions fail to deliver to expectations. The reason most often given for this is "culture" and "cultural differences". Hardly surprising that there's differences, but seemingly there's not enough work being done to harness culture to actually improve post-transaction growth outcomes;
still others who are simply "over" dealing with volatile growth: in this group are those who've had enough of feeling like they have no control at all over growth of their business.
The way forward for each of these groups (and probably your business as well)? As the saying goes, "same. same, but different."
Why is sustainable growth important?
Before getting into solution mode, let's confirm why a sustainable rate of growth is important for every business.
There's an almost inexhaustible list of reasons business owners and leaders should aspire to creating sustainable growth. Here's some of them:
Investment in business improvement initiatives: over and above day-to-day spending, most businesses find themselves from time to time in need of funds to improve or expand their operations. If growth is sustainable (read predictable, repeatable and consistent) it's much easier to be confident about making those investments because financial outcomes (revenue and profitability) are more stable over time;
Seeking external investors: one way of expanding a business is by attracting external investors. Most investors closely consider the risk/return equation and are generally more attracted to investments where their target returns are realistically achievable. Businesses where growth is sustainable find it easier to attract outside investors;
Seeking finance: financiers (particularly banks which are usually quite risk averse) are also more interested in lending to businesses more likely to be able to repay their debts. Sustainable growth is of course one of the proof points of the ability of a business to stay on top of its debts. As well as finding it easier to source borrowed funds, those funds may also come at a lower price;
For clients: for the most part, clients like to deal with businesses that show at least some likelihood of survival over the longer term, which sustainable growth facilitates;
For employees: likewise, employees and prospective employees like some degree of job security and potential progression. Working in a business with large swings in financial performance from year to year isn't especially enjoyable for anyone. It's just too stressful;
Looking for purchasers: while sale of a business isn't the only way to exit, it's the most common. Most prospective purchasers will look more favourably upon (and pay more for) businesses able to point to sustainable growth over time;
Peace of mind: apart from anything else, if you can create a framework for sustainable growth in your business it really does (as we said above) help you sleep at night.
You may have other thoughts and if so, we'd love you to leave your ideas in the comments section below.
What can you do to create sustainable growth?
While expense management and continuity of revenue are key, these financial outcomes are achieved as a result of everything else that goes on in your business. They don't happen on their own.
The basis for achieving and maintaining sustainable business growth sits in the answers to four simple questions. A lack of clarity around any of these questions will potentially put a sizeable dent in your growth outcomes.
Let's have a look at the four questions and why they're import1. What is our business great at?
You'd think answering this question would be relatively straightforward. Most owners started their business because they had a particular skill or talent, were great at building something or creating a standout product.
All too often though, business stray too far from the original “great thing” they were good at, to the point where they’re unrecognisable.
Successful businesses don’t do that. They tend to stick pretty closely to their knitting. They'll innovate and improve along the way but don't stray too far from what they're great at...the business remains firmly planted in its "core greatness".
Why is this important?
When you know what you’re good at, it's pretty easy to deliver great results. Your business becomes a labour of love and your passion will show through in everything you do. Be clear about your product/service offer, the benefits it brings to customers and consistently deliver those benefits. It’s a great start in building sustainable growth.
You can't afford to be complacent, of course. You need to be aware of and adjust for things like technological advances, changes in customer preferences and other factors that might turn your "greatness" into "not so great anymore".
Make those adjustments - you have to - but stay as close as you possibly can to what it says on the label.
2. Why do we do the thing we’re great at?
This is your business purpose.
As Simon Sinek said in his now legendary TED talk, people don't buy what you do, they buy why you do it. You need to be crystal clear on your purpose - that is, the reason you do what you do beyond purely commercial considerations.
A great way to address this question is to ask yourself why your business was originally established. What were the customer challenges you or the founders thought needed to be addressed?
Why is it important?
We don’t believe there’s too many business owners who started their business purely with the profit motive in mind, nor the idea that their business was going to make them rich.
Those are outcomes that some achieve but it’s rarely a prime motivation.
They’re also most definitely not the reasons customers buy from your business, nor why employees want to join you and stay with you.
Customers and employees are certainly not driven by your desire to make money.
But they will buy into your business purpose, leading to higher engagement and loyalty across both groups.
3. Who should we be doing our great thing for?
In other words, who's your ideal customer?
It pays to get really specific with your answer to this question. Of all the consumers who might happen to buy what you have to offer, there’s a subset who a) love what you do and b) buy into why you do what you do – your purpose.
When they become customers, they do so with intent.
Your business purpose should be your starting point when building up an ideal customer profile. Focus your thinking on the customers on whose needs and challenges you based your initial business. Why did the business target those customers with those specific needs?
You’ll likely begin to see some similarities among your very best existing customers which you can use to model ideal customers to target in future.
Why is it important?
Your ideal customers buy from you because they’re truly engaged with your business.
And when your customers are engaged, they’re more loyal to your business. They’re more likely to become repeat purchasers and support you through good times and bad. They also become advocates for your business and let everyone know how great you are which means free marketing!
4. Who's going to help us deliver our great thing?
You shouldn't hire just anyone to join your business (though some aren’t particularly selective, it would seem).
First and foremost, you need employees who buy into your business purpose. Your employees want to know how their day to day work contributes to a bigger picture…how their efforts help the business fulfill its busines purpose.
Of course you have to employ the right mix of skills and abilities to enable the production and delivery of whatever product or service you offer. But great skills play a supporting role to employee engagement when it comes to delivering a great customer experience and achieving sustainable growth.
Why is this important?
There’s a host of research globally that points to the importance of employee engagement and its impact on customer satisfaction and financial outcomes.
For example, improving engagement among employees:
Reduces absenteeism (and “presenteeism”);
Improves productivity; and
Reduces employee turnover.
To summarise...
Sustainable growth - growth that is reasonably predictable, repeatable and consistent - is a common sense business aspiration. We've provided several reasons supporting that statement.
At the core of the sustainable growth framework is clarity of business purpose...the reason you business exists outside of economic considerations. It's increasingly what consumers look for in businesses they deal with and certainly the key to attracting and retaining great talent in your business.
Getting clear on, and aligning your responses to, the four questions we've covered in this post takes some effort. But the rewards from doing so are substantial.
What about your business?
Have you answered the four questions?
Are you clear on your purpose?
Feel like you could be doing better?
GrowthCatalyst can help address these issues and deliver what money can't buy: time.
We invite you to contact us to arrange a conversation, face-to-face or virtual.
Alternatively, you can book a time for an initial discussion here.
And how sustainable is your business growth?
If you're keen for some immediate feedback on how sustainable your business growth might be over the longer term, please follow the link to our "Sustainable Business Growth Health Check".
It'll take you no longer than three minutes to complete and you'll get your results instantly.
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