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Yee Trinh
Yee Trinh, Cofounder at SavvySME

Growth

When should a business focus on growth over profits?

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2 Answers

Andrew Snell

Andrew Snell , Director at Coaster Group

I have to respectfully disagree with Roland. Firstly, not turning a profit when the business reinvests to allow growth is the way many businesses secure their future. And, suggesting that Amazon (or Google, Facebook, Snapchat, Instagram, Tesla etc) was a hobby, or in any way wasn't a business until it turned a profit is incredibly naive. Any market changer, innovator, research company or business developing hardware will have a long period before turning a profit, while operating very much as a business.

To answer the question though, it depends on the type of business, its present financial position and the state of the market. I agree with Roland that the key is margin, but there is rather more to it. Revenue, and cashflow, is king - it is what allows a business the means to keep running. At the end of the day, there isn't much point making huge margin on each sale, if you have to lay off all your staff between projects.

If you are in a product business then marketshare is vital. Your revenue streams may be from customers other than those who are actually the end user of your product. This means you need marketshare, to be growing, and to be keeping your product current. It's actually the same for service businesses.

If you want your business to do more than sustain itself at its current level, you need to grow. The right time to do so will be when you have cashflow and resources within your team to invest in it - or if your business is just starting out, for as long as you can sustain the growth phase.

Businesses come in many shapes, sizes and make ups. If you want your business to grow and are able to invest your "margin" to do that in lieu of turning a profit then do so - you know your business, your customers, and what your team can do!

Customers, or users, are the new profit to many modern businesses. Strong market position means your business can face the future, and when it comes time to turn a profit it will likely be much bigger than focussing on taking whatever you can at the start.

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Roland Hanekroot

Short answer:... never... growth for growth sake is plain silly... it's not a business model... a business that doesn't make profit, isn't a business, it is a hobby.

I know I know... Amazon didn't make a profit for many years... true... but all the time it wasn't making a profit, it wasn't actually a business.

But as far as small business is concerned: Don't focus on growth or marketshare or something silly like that... worry about three things: Margin, Margin and Margin

And nothing else

cheers

roland

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