I speak to a lot of executives, chief executives and commercial managers around business metrics and what is important in a business. What matters in driving your business? What is important to be sustainable and successful? How does this translate in to a financially sustainable business long term?
One of the arguments I have with many of the people above is whether you should pursue growth and increased revenue or focus on running a business that may be smaller but more profitable because you have chosen to.
For publicly listed companies, I can understand the focus on growth to continue to provide sustainable earnings and a return to their shareholders. By continuing to pursue new markets, services and industry sectors this provides opportunities to deliver on this commitment. It makes sense even though I would argue that it should not be at the detriment of good earnings and profit which I know as a shareholder is important long term when choosing to invest in a company.
However, for smaller businesses, I don’t understand the logic. Why would you pursue more revenue if it means a less overall profit? More work for less return. That appears to lack any logic, rationale or reasoning.
To highlight this, I see so many businesses go through growth and achieve an average of 5 per cent EBIT or less. I also see smaller businesses who achieve 30 per cent plus EBIT which effectively means that even if the company that makes 5 per cent had five times the revenue, they would struggle to make the same profit as the smaller business.
I can speak from personal experience. In our first three years of building BRS, we grew rapidly. Lots of staff, high revenue and fast growth. Just over twelve months ago, we scaled down our business, focused on profit and have achieved outstanding financial results in challenging times. We are very profitable and doing it in a manner that does not feel rushed, stressed or chasing work. We are truly enjoying the journey now rather than before being consumed by being a hamster on the revenue and growth wheel.
Give me improved profit over revenue growth any day of the week. When thinking about what is important for your focus in your business going forward, take in to account not just the financial results and outcomes. A focus on profit means choosing the right industries, profitable clients, enjoyable work, repeat work and referrals and doing more with less. These other benefits such as more time and more energy come with being smaller and focused on profitable work, reducing unnecessary costs and delivering good work.
It also reduces a significant amount of self-imposed stress that we all put on ourselves to continually chase the next sale, next lead or next market to prove to others that we are bigger or better than them. This is not a race, I am not keen to run anymore. Off the hamster wheel and on to doing work that provides a significant return for my time and energy and frees me up to have a positive impact in other areas that are important to me.
Driving is for show and putting is for dough which is a great golf saying. Very similar analogy for revenue and profit. The money you end up taking home matters rather than lots of sales. It may look good but it doesn’t pay the bills.