Profitable growth is what all businesses want. If a business is to grow, then it’s important to make sure it grows profitably. But it’s not that simple. profitable growth is complex, and is very difficult to achieve.
Businesses always talk about growth. The key really is growth versus profitable growth. When a business is increasing revenue, everyone is happy, but it’s easy to lose sight of the bottom line. Revenue only matters if it is profitable. Growth really is about the customer, defining needs versus wants, and giving the customer an optimized combination of both.
At the end of the day, profitable growth is a paradox. It’s difficult for a company to grow without spending money. Spending money hurts the bottom line. Finding ways to grow that offset the spend (capital, people, advertising, etc) is a difficult task and requires a plan and a committed team.
How do we do it? There’s four key areas to create profitable growth – Strategy, Customer, Innovation, and Product.
Strategy
The right strategy for profitable growth takes an in depth understanding of your strengths, weaknesses and opportunities. The strategy needs to take a holistic view of the business, and understand what are the key process indicators that drive the company. The strategy needs to take into account continuous cost improvement, continuous manufacturing optimization, efficient new products, make vs buy decisions for new products/processes, new markets, customer satisfaction and input, organizational structure/design, etc. Gathering input from all these key areas will set a strategy to define a company’s short/long term goals, then identify the best opportunities for success, and then measure then measure those plans on the road to implementation.
Customer
Does the company understand the customer? Do we know who are highest profitable customers are. Does the company have a group of highest profit customers. The company needs to identify that group and make that group happy and create very high retention. I think the key thing to understand is that this is not just about adding customers. The add needs to be profitable, retained customers.
The company also needs to identify customer wants and needs. Here, its important to meet with customers, understand their issues, their needs. What can the company do to create a better experience, satisfy their needs, and provide more products/services. A visceral understand of the customer is crucial to grow a business. Once retained, then there’s opportunities to look at how do we add more customers to that profitable group, and also is there opportunities to sell more products to that customer group.
Innovation
Innovation is an easy way to profitable growth. All a company has to do is identify an innovative product or process, implement it, and then the growth and profit start to roll in. it’s not that simple, and that’s why no one has developed the next iPhone. It’s important here to understand the industry, the trends. It’s important to have a deep understanding of where the customer and market are going, where is the technology going. This is where Warren Buffet’s moat theory comes in. Once a company can define an innovative product or process, then the company can price for it and begin to scale. If a company can get a regular innovation strategy in place where it is identifying trends and establish competent futuring, then profitable growth can be realized thru pricing and scale.
Product
Finally realizing efficient, competent product development is key to profitable growth. Multiple aspects of product input are important such as competition, trends, product futuring, and customer needs. It’s also equally important to have an organizational structure that is open to those inputs and allows freedom to come up with new ideas where those ideas can be vetted and analyzed to determine a key product plan. However, it’s not enough to just have a product plan for short and long term, a company must have an efficient implementation and organization. Is the implementation timing plan efficient? Also is the organization an inhibitor to the implementation? It’s key that the way the organization works (people and process) is efficient in order to have the right product at the right time.
So overall, it’s important to understand that profitable growth is complex and takes detailed plans in order to implement. But with the right team, experts, and strategy it can be achieved.
Maybury Partners, LLC 