Although every business wants to grow, some types of growth are certainly better than others. Consider the following 2 options:
- OPTION 1: Grow Sales by 20%, and net income increases 50%.
- OPTION 2: Grow Sales by 50% (a lot more work and risk than Option 1), and net income only increases 20%.
The best way to grow is when net income growth out-paces sales revenue growth. For every additional unit of sales, we want to generate more profit, not less. How can we accomplish this?
Jim Collins, the author of Good to Great, found that the more an organization sticks to its core competency, the more opportunities the company had for the good kind of growth – the growth where net income increases faster than sales!
What is your core competency? It’s what you do well and, when you do it, you’ve proven that it can make money. If you are a trade contractor, then it is your trade. If you are an attorney, then it is the law. If you are a widget manufacturer, then – I think you get the point.
I have experienced many occasions when, in its desire to grow, a company strays from its core competency and involves itself in a business and industry it doesn’t know very well. Sadly, these new ventures begin to drain time and resources (most importantly, CASH!) from the main business. In essence, the core competency of the firm subsidizes a less successful venture.
Sticking to your competency requires a great deal of discipline, but it is the best way to grow your company. By sticking to your core, you will find the most profitability and enduring growth opportunities!