The battle between growth and profitability or what came first is somewhat of “the chicken or the egg” dilemma.
Growth affects profitability and profitability supports growth. Which one should come first?
As metrics that measure the success of a business in different ways, growth and profitability can cause a lot of headaches because of their complex interactions.
Which one do you think is more important for a business?
Both. Profitability is a “current” metric while growth is future-oriented.
The main problem arises when companies want to push for growth without being profitable or increase profitability by compromising growth.
Another, even bigger problem is when companies cannot grow because they cannot bridge the gap of time and find themselves on the perpetual hamster wheel. Time is a key variable in a company’s growth, and when you don’t have enough time, you end up neither growing nor profiting. You are stuck.
So how do you excavate yourself out of this hole?
Find out the answer on the Virtual Frontier podcast below:
Growth vs. Profitability: Can You Pull Off a Balancing Act?
Profit is an absolute value calculated from putting revenue and expenses in the same basket.
Profitability, on the other hand, is a metric that measures success relative to the scope of the business.
Growth can be measured in a number of ways. You can grow by boosting revenues from more sales or more expensive sales, or by extending to another market.
Growth is very important for startups. If a startup’s growth looks promising, it can remain alive even if it is not currently profitable. But as the company grows over time, it cannot rely on continuous financial injections. The same goes for any small business. You cannot pour cash in while projects grow and clients come in without increasing profits.
However, you can also grow by minimizing costs. The less money comes out for unimportant activities, the more you have for the crucial ones.
Therefore, becoming flexible enough to balance growth and profitability in a disruptive market is a must-have leadership skill.
You have to be scalable.
Growth vs. Profitability vs. Scalability
The traditional definition of scalability is the business’s capacity to respond to greater demand by providing greater supply. And even the growth definition includes a focus on growing in size.
You grow when you spend (invest), and you become profitable as you save (keep high balances).
Is the growth vs. profitability dilemma really as simple as risk vs. safety?
As seen before, growth is a tricky metric. It doesn’t always equal the highest numbers. When you try to grow by reducing costs, fewer costs mean more growth.
Let’s consider an unorthodox definition of scalability:
Scalability is growth independent from profit. A scalable business can change its size in both ways — increase or decrease — and still be profitable. Sometimes, decreasing the size of a business is the only way to “grow” considering the circumstances.
Scalability means creating resource resiliency regardless of the conditions.
The thing to do is position your business contingency plan strategically to adapt your resources to changing circumstances, be it time, projects, clients, or employees.
Creating virtual teams you can scale with freelancers in line with the project needs is a resilient growth method.
Search for Growth and Profitability in Value
When you have multiple mathematical expressions of how successful your business is, it is time to think about maximizing value.
Value is a customer-driven metric because it signifies meaning and “worth” for your customers. The business’ generic growth spurts from the value created for customers. Therefore, you can think of developing scalable virtual teams, tools, and workflows as an external growth method. And you can consider added value creation an internal growth method. How can you create “added value” for your customers?
- Have an impeccable QA system to manage projects
- Invest in digital leadership
- Use OKRs and KPIs to drive growth and profitability
- Encourage job autonomy
- Partner with best the perfect clients, not with every client
When you have the right systems set in place it is easy to make your business larger and more powerful.
If you need help in solving the growth vs. profitability conundrum for your business, let us know.
Create additional value and solve the perpetual hamster wheel issue once and for all.
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