Every business owner I know wants to grow- and fast. Why not? Opening that second location allows you to leverage your skills, get more out of your fixed costs (advertising, for example) and heck, it is exciting! However, what rate of growth is realistic?
The Journal recently reviewed “Doing What Matters”. The author is James Kilts, who was able to turn around performance at Gillette and completed its merger with Proctor and Gamble. He makes some interesting comments about growth.
The book cites a study by McKinsey, the large consulting firm. They sampled more than 1,000 companies and found that only 15% were able to sustain double-digit earnings growth for five consecutive years. Less than 1% sustained that level of growth for 10 straight years.
“Overambitious projections lead to a death spiral that Mr. Kilts calls the ‘Circle of Doom’- sales shortfalls, increased prices, cuts in marketing, ‘loading the trade’ with excessive shipments to make sales forecasts, and…doom.”
Other comments by Kilts: Reduce your overhead costs whenever possible- make it a focus of your business. For long-term growth, decide to be the “best-in-class” company delivering your product or service. Improve continually and work with “a sense of purpose and urgency”.
The Lesson: Don’t be too aggressive in your sales goals. Consider the impact growth will have on your existing business. Will you truly be better off?
Your Homework: If you have grown in recent years, what seemed to suffer? Were you able to address the problem quickly? Are you better off now because of the growth?
(Source: “The Man Who Sharpened Gillette”, Wall Street Journal, 9/5/07)
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