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Friday, September 2, 2011

Is your business really growing?



By Gerardo Canales
“My business is growing rapidly. Sales have doubled every three years,” a proud business owner once told me. I had been hearing the phrase “business growth” so many times that I began asking myself, “What is business growth?” I knew the financial definition, but is that all there is to the famous buzz phrase? In fact, through research and experience, I’ve found three variables that, when combined, clearly define business growth.

A Company Must Increase Intellectual Capital

Intellectual capital translates into expert knowledge, which means that your company employs thinkers and executive managers in its organizational structure. Your company could increase sales, the number of transactions, and even the employee headcount; but without intellectual capital, it would be very hard for you to maintain a sustainable company. You cannot measure intellectual capital in your financial statements, but you can see the financial outcome of a more mature and disciplined organization. Somehow, sustained profits and intellectual capital are very closely related. If you think you will be the sole decision maker for a long time in your company, think again. Read a business case

An Increase in Company Operations

If your company were to land a big contract, would that be enough to say your company has grown? Not necessarily. There has to be more, a sustained increase in the operations, for true business growth. There are a number of events that could give you an allusion of growth without creating sustainability and profitability. If you were to increase the number of employees, for instance, then you would have a higher payroll instead of a bigger company. Similarily, if you were to find oil in your land or enjoy some other such windfall, then you would have gained more royalties but not more operations or knowledge. Be aware of these scenarios because a rush of business can actually be very dangerous for your company if you do not take in all factors necessary for further growth.

An increase in Organizational Structure

Think about the local wholesaler that imports products from Asia and resells to local and regional customers. On a good day, their products earn a corporate buyer and their volume has duplicated; they may have hired two additional employees in the warehouse to adapt to the increase in business. But do they have business growth or higher volumes? Ideally, an increase in the organizational structure will include higher intellectual capital—a good sign of hiring right and hiring smart. When your company increases operations, it might lead you down the right path, but not until those operations are reflected in the organizational structure and higher intellectual capital can you proudly announce that you have grown your business.

Finally, there are many paths to achieve sustainable business growth; depending on capitalization, sometimes it could start with higher intellectual, and other times the trigger is an increase in operations established to later capitalize with a smart organizational structure. Regardless of the sequence to achieve business growth, we should be able to define it so we can work to achieve it.

-- Canales is a business growth consultant for small and midsize service and distribution businesses, with finance and crisis management experience for midsize businesses in Texas and the Midwest. Read his bio

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