Stop Focusing on Profitability and Go for Growth

The ready access to low-cost capital is going to change the way we think about the relative value of improving profit margins versus accelerating growth. When capital costs are high, strategies that expand margins are almost always better than strategies that accelerate growth. When capital costs are low, the time value of money is low. In these circumstances, strategies that generate faster growth create more value for most companies than those that improve profit margins.

To thrive in this new world, leaders must overcome the obstacles to growth in their organizations.

Creativity and ingenuity have always been precious. A single great idea can put a company on top, and having a number of small good ideas can keep a company ahead of its rivals for years.

Companies that encourage innovation create flux time for employees to devote to new projects. They reward risk taking, by encouraging executives to capture learnings from efforts that come up short and then build these lessons into the next round of experiments.

Succesfull companies invest in a number of experiments and then they are quick to spot the losers and shut them down, and double down on the experiments that show promise. These companies look to open as many doors as possible before deciding which ones to walk through.

Companies that treat the time, talent, and energy of their workforce with the same discipline as they do financial capital perform far better than the rest. The most productive companies have the talent they need to generate good growth options. And they put these “difference makers” in roles where they can make the biggest difference in the company’s profitability and growth. Workers at these companies have the time they need to devote to creative work, free from excessive process and bureaucracy. And, perhaps most important, employees at these organizations are engaged and inspired by their work, bringing far more discretionary energy to their jobs every day.

Summing-up: It’s hard to create an organization capable of generating a pipeline of good growth ideas, but it is imperative in today’s world of superabundant capital. This requires treating the time, talent, and energy of a company’s workforce as the truly scarce resources that they are and managing them with the same care and rigor that has been brought to financial capital in years past.

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