Growing a business is the priority of most entrepreneurs, as it should be. But growth can be challenging if the right steps are not followed. In this article, I’ll outline 5 things entrepreneurs should get right when growing their company. But before then, what is growth?

Growing Vs Scaling

A company is said to be growing when its resources increase. Although the word resources includes customer base, employees, inventory, and other company assets, growth as applied in business is often associated with increased revenue. But there is a downside to growing a company and that’s the fact that growth is directly proportional to cost. Meaning that the more the company grows, the more money it spends.

For example, a company that wants to increase the number of offices to cater to its growing customer base. If it achieves this goal, then its revenue will grow. But at the same time, renting more offices and hiring employees will cost the company more money. Ultimately, growth may increase revenue but the profit margin could remain the same or decrease.

Scaling on the other hand has more to do with a company’s ability to increase revenue without increasing cost. That is to say, cost stays the same whereas revenue grows. To do this, the company needs to focus less on acquiring resources (like when growing) and more on increasing profit margin through efficient use of available resources.

For most companies, growth comes before scaling. However, SaaS companies can scale easily without having to acquire more resources.

Measuring Growth in Business

Here are some metrics that can be used to determine how much a company is growing;

Sales revenue - total revenue generated by the company from sales of goods and/or services

Net or Gross profit margin - the net profit margin is the profit made after all expenses (cost of goods sold and operating cost) have been deducted from the total revenue. Gross profit margin is the profit that remains after deducting the cost of goods only from the total revenue.

Market share - this is the percentage of the total sales or revenue in a given market or industry that a company owns.

Average order value - this is the average amount in dollars spent by a customer per transaction on an e-commerce website.

New customers acquired - the number of new customers acquired. This is calculated by subtracting the number of customers at the end of a period (e.g. yearly or quarterly) from the number of customers at the beginning of the period.

Average sales cycle length - this is the average time taken to convert a prospect into a customer.

Customer retention - this measures the ability of the company to retain its customers over a period of time.

Five things to get right when growing a business

Funds

When it comes to growing a business, cash is king. However, many entrepreneurs learn this lesson the hard way. 8 out of 10 businesses fail in the first 18 months. That’s 80%, a staggering number indeed. But among the many reasons why this happens, lack of cash sits at the top.

Many business owners find themselves in a fix a few months into the business due to poor cash flow management. The problem arises when a business spends more cash than it receives.

This creates a liquidity problem and if it continues the business will be unable to cover the regular payments that keep it going, such as loan repayments, or paying its suppliers. If you want to grow your business, then you need to avoid getting cash-strapped by properly managing cash flow.

Innovation

According to McKinsey “In a business context, innovation is the ability to conceive, develop, deliver, and scale new products, services, processes, and business models for customers”. But there’s a catch. For innovation to help a business grow, it must be useful.

Looking at the current trend among startups, innovation is often associated with a major technological breakthrough. But it doesn’t always have to be. A simple upgrade in performance, services, or products in a creative and useful way can serve the same purpose.

The point is to give the customers a new experience that adds more value to their lives. If this is done correctly, the business will benefit as customer loyalty grows and revenue increases.

Management

When starting a company, it is quite easy for the founder or business owner to take on most of the tasks and decision-making needed to keep the business running. But if you are thinking about growing the business, then you must consider getting a team.

This could be daunting at first considering that most business owners have become accustomed to running the show themselves and so find it difficult to delegate. But it’s a learning process and one that’s inevitable if you must grow the business.

Without a team in place, it will be difficult to manage the business as it grows, and trying to do it alone will lead to poor decisions and ultimately poor business management.

Planning or strategy

Growing a business doesn’t just happen, and although some businesses are easier to grow and scale up without investing so much into planning, the majority will require in-depth planning.

Having a plan saves you from making spontaneous decisions that are not well thought out. It also makes it possible to account for unforeseen circumstances that could arise as the company grows, and prepare accurate countermeasures in advance.

Technology

The rise in technology has spurred innovation in all industries. Whenever a new technology comes along,  business owners look for creative ways to adopt the technology in growing their business.

They do this by understanding how the technology can be implemented in their business processes to cut production costs, speed up product development, improve customer experience, or boost efficiency and productivity.

Companies that are quick to adopt new technologies in their processes often have a head start over those that don’t. Typically, SMEs are at an advantage here since their small size makes them flexible enough to adopt new technologies with minimal downsides.

Conclusion

Growing a business takes time, effort, and preparation. In this article, I’ve discussed five areas entrepreneurs should get right if they want to successfully grow their business. There would be more areas that need attention depending on the type of business and the industry it operates in. However, the information in this article can be applied in any business across multiple industries.

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