Opposing Views On Designing Your Business For Growth

A classic difference of opinion…

A. Keep your organization as LEAN as possible and build sales and revenue first. Overwork your employees keeping productivity as high as possible and when you are ready to explode, begin to slowly add staff, production people and sales people. Never add enough to take production pressure off or you end up with too many employees. Productivity plummets and profitability is out the window.

Versus…

B. Build the organization to fit your expectations and then build sales with a full team ready to support the sales success as it develops. This is expensive, so you’d better have the cash to support this strategy or die trying and the sales had best come as fast and as furious as projected.

Profitability is heavily influenced by employee productivity, and the fewer employees you have and the greater your sales revenue is, the more profit you’re making. Profit supports growth and development once the sales revenue is in hand.

Look carefully at the amount of capital you control, as cash flow will be negative while building revenue. Your cash flow pro forma should be telling you when and what is break-even. Unfortunately, only in the rarest of situations will sales generate the optimum revenues anticipated as early as projected and if it takes longer than your cash flow can support, you’re headed for a downturn. It’s not just about sales, it’s really about collected revenues and profit that always arrive later than needed.

Thus, it is clear that the best strategy you can employ is to work your sales group as hard as you can, to capture as much sales revenue as possible adding production and administrative support well after you think you need them and only as absolutely required to keep the work force functional with supply barely meeting the demand. One of the more frequent causes of failure is building a work force designed to support a significant revenue flow long before you have it. Another sin is paying salespeople for time and effort unconnected to sales revenue.

While building revenue,  if the cost of an excessively large employee group is eroding your capital long before you have reached your productivity goal and break-even status, then all is lost. Once you have run out of capital, growth becomes impossible since payday comes every week and receivables come every 45 days and once the downturn begins, it frequently cannot be turned around and you will run out of cash while you wait for sales and receivables to catch up..

This is also a wonderful time to mention incentive-based reward systems, i.e. paying your employees for success (increased productivity, revenue and profitability) which helps drive them to higher levels of productivity rather than adding employees who work by the hour unattached to company success, thereby delivering lower productivity. Build sales first then increase your organization. That’s the way to build profitable organizations and remain in business long enough to enjoy your success. Build slowly. Resist overcompensating and hiring more than you really need. Always have fewer employees then you think you need. Further, resist overtime as your sales increase and productivity is running behind. It’s not the way to increase productivity, it only increases costs and decreases profits. Add incentive-based rewards and watch your productivity skyrocket.

Revenue before more hiring, that should be your mantra. Lean and mean and profitable.