Leadership
What is the Right Level of Growth?
If a business isn’t growing, it’s dying. To define growth, begin by looking at the owner’s motivation. If you see your business as an investment that gives you X in return, then your definition is different from the motivation of an evangelist promoting healthy environment and culture. My goal is not to judge your motivation, but to make sure that what’s motivating you is in line with your growth vision and strategies.
Regardless of how you define growth, there are common denominators for everyone. One that’s important and relevant today is the rate of top-line sales growth year over year. The more you understand what the ideal rate of annual growth is, the more you can plan and focus on executing. The following are some rates of growth over the previous year and a few comments on each.
0 to 5 percent: Based on a stable economy, this growth level is extremely conservative. Generally, I would only recommend this modest plan if your business is a mess and you need to do a lot of cleaning before growing. Your biggest concern with this growth level should be what amount of market share you will lose in future years and how your team will feel about the status quo.
5 to 10 percent: This level suggests that the owner may be riding the brake (which is not bad at times). As with driving, you generally don’t ride the brake and the gas pedal at the same time. This level shows a modest commitment to growth and isn’t very aggressive. If you are introducing a new product or bringing on or replacing key team members, then this range might be the best goal for now. Pursue a more aggressive target next year. Modest goals are not very exciting, and when your team isn’t excited, they may not perform at their potential and will feel frustrated.
10 to 20 percent: This is a wide range, but this level should yield strong returns. The target is aggressive in that you will need a solid plan, a strong product, and a positioned team to achieve it. It is realistic in that it takes into account normal curve balls thrown at you throughout the year. If you are properly positioned, then you should also see a good return. I like this growth rate because it allows the team to grow and advance their careers, which allows you to retain talent. I think this is the sweet spot of growth for most builders.
20 to 30 percent: Many builders grew at this level in 2013 and during some of 2014. However, that jump came on the heels of years with very low growth or losses. This range can be quite risky and may not be as profitable as growing at 15 percent. It’s like running a car at 80 mph vs. 60 mph. Which speed gets better mileage per gallon? The keys for attaining this growth level are having a great market, a few franchise players, and a fit business with a lot of energy to pull this off. In addition to having a great plan for this target, have a more conservative scheme for 15 to 20 percent ready to go if by midyear you are falling short.
More than 30 percent: Very aggressive and very risky. I have seen builders go out of business because they didn’t have the infrastructure to handle this pace of growth. I would encourage you to seek a business coach or adviser to validate your plan and challenge your assumptions. Is your team equally committed to this target? If not, you will never get there. There are exceptions, but they are rare, so proceed with caution.
In closing, go back and look at your pace of growth during the past five to 10 years. The wonderful thing about history is that it doesn’t lie to you. Whatever rate of growth works for you, make sure it is planned growth and that your team is fully aligned with your vision.