For many entrepreneurs and business owners, investing in equipment, merchandise, people (hiring), office space, retail, legal, and so on, is a part of everyday business. These types of investments keep the lights on, hence why we associate them with “survival”.
Naturally, if you just started your new business, then most of your investment should be allocated towards “survival” because you are trying to get to the break-even point as soon as possible. And considering most businesses are not profitable in their first year of operation, it makes perfect sense to be in “survival” mode at the beginning. However, what doesn’t make sense is to stay in “survival” mode for years, and in some cases decades.
Is your business in the survival mode?
If your revenue barely covers expenses, then you are still in the “survival” mode. Also, you are in “survival” mode if you are only growing at the rate of inflation (2-3% per annum). Historically, businesses which stay in the survival mode for too long eventually decline or go out of business.
Avoiding the survival mode cycle
Focusing on growth from the beginning is essential. You may not have a lot of funds to invest in growth at this early stage of your business, but you have to get into the habit of planning for growth and allocating a budget for it. It may only be a small percentage of your revenue, but this type of thinking is critical because continuous and sustainable growth only comes to those who plan for it.
5 pillars of a growth strategy:
- Goals (e.g. growth rate)
- Timeframe (e.g. 3 years)
- Type of growth strategy (e.g. Product development? Market penetration? Market development (market expansion)? Diversification?
- Tactics (all the necessary steps to achieve your growth targets)
- Milestones (e.g. quarterly revenue numbers)
Investing in growth is never optional
If planned and executed correctly growth-related investments will give you the highest ROI. Without question, investing in growth is more important than investment in equipment, merchandise, office space, retail, etc. Why is that the case? Because a growing business can pave over a lot of operational cracks, but operational excellence cannot pave over poor revenue or sales. Therefore, if you have to focus on one, focus on growth, rather than the cost of business (operations).
In summary, for most business owners it is easy to justify investment in equipment, merchandise, people (hiring), office space, retail, and so on. These are all considered necessary expenses for running a business. However, most of these expenses will not directly result in higher sales and revenue. On the other hand, investing in growth (strategy, marketing, advertising, product development, etc.) does have a direct impact on revenue. Finally, most of us are familiar with the saying “It takes money to make money”, and growing customers, sales, and revenue is no different.