One of the most common questions that entrepreneurs have relates to profitability and growth. A successful company needs to focus on both profitability and growth, but a young startup may have trouble finding a happy middle ground between these two goals. In fact, many entrepreneurs feel as though they must decide which of these goals they need to focus attention on because achieving both at the current time seems impossible.
With a closer look at what growth and profits are, you can determine where to focus your professional efforts in the months to come.
Weighing the pros and cons
You would ideally like your company to grow exponentially while generating incredible profits, but smaller and newer companies may find it challenging to focus on both at the same time. To answer this question about whether to work on improving profitability or maximizing growth, it is important to take a closer look at your market.
If you are one of the first companies in a niche, such as how Facebook or Amazon was in their fields, focusing on significant growth initially may be a good idea. These companies specifically were not profitable for several years because they focused on growing into new markets, but now they are highly profitable.
For companies that are less unique in their market, keeping the overhead lead by focusing on organic growth may be a smarter idea. Spending an excessive amount of money trying to grow in this type of business environment could backfire. However, be aware that profitability and growth go hand in hand even for smaller businesses or startups. Therefore, purely focusing your attention on one of these goals at the expense of the other is not usually a smart idea.
Profits are important for any business, and they may be the only source of capital for startups that do not have investors or business loans. Companies will likely fail within a short period of time without sufficient capital from profits. This is particularly true for startups because they usually do not have well-supplied coffers to rely on. Therefore, you can see that your company needs to become profitable if you want to succeed, and your primary focus may need to be on generating profits right from the start.
Keep in mind that expanding your reach in the market through growth is one way to generate a larger profit. If you have investors, they may even demand that you focus substantially on achieving incredible growth. However, in some cases, this can drive a new company into the ground. Spending too heavily on marketing and sales efforts can be unnecessarily expensive, but severely restricting expenses in these areas can result in stagnation.
Many owners and executives are heavily focused on growing a company exponentially at all costs. It is true that substantial growth and increased market share can improve profitability. However, when expenses are too high, even a growing company can fail. This is because profits may be dismal or even nonexistent when too much money is re-invested in marketing and sales.
All companies should explore the opportunities for growth carefully despite the current level of profits. After all, growth correlates to increased profits in the future. All growth should be well planned and strategic, and you should not rush forward experimenting with growth in different ways.
You need to focus on your company’s weaknesses before attempting substantial growth. For example, if a company lags in the area of customer service, growth strategies can be challenging to implement. A company should be strong in all areas overall before focusing heavily on a growth strategy. Any weaknesses can cost a company money unnecessarily, and some weaknesses could stifle growth.
Carefully review your current business operations to learn about areas you could improve on. For example, you could automate systems or use technology if you want to focus on growth while keeping profits as high as possible. The money you save through automation could be reinvested in the company’s marketing and sales efforts, and this will not interfere with profitability. This scaled approach to growth and profits may work well regardless of the current size of your business or the niche that you work in.
The growth strategy that you select for your business should also align with the goals of investors and owners. You may need to scale down expenses while expanding in different ways in order to find extra capital to pay for growth projects.
The question of whether a startup should focus on profits or growth can seem like the chicken and egg scenario. After all, profits are usually maximized when expenses are reduced, but this can hinder growth and expansion. A great way to find the extra capital that is necessary to fund the expansion and growth of your startup while keeping profits high is to improve productivity and efficiency through automation. Spend time developing a cost-effective strategy that allows your company the opportunity to grow without hindering profits.