THE BUSINESS WE MEANT TO BUILD

How good businesses lose their way

Chapter 6 – Growth Is Not a Direction

I have often wondered when growth became the accepted answer to almost every business question. Ask how a business is progressing and someone will usually mention turnover, staff numbers, customer numbers, locations or market share. The bigger the figure, the more impressive the story appears, particularly when reduced to a headline or presented beneath photographs of people whose wealth seems to confirm that abundance is available to anyone willing to chase it hard enough. What is less frequently discussed is whether the business owner is actually better off, whether the business has become stronger or whether all that additional activity has moved anybody closer to the dream that started the journey.

Growth can be a worthwhile objective, and in some businesses it may be essential. A business that remains too small may never generate enough margin to support the systems, people and investment required for its long-term survival. Greater scale may spread fixed costs, create opportunities, strengthen buying power and provide resilience that a smaller operation cannot achieve. This is not an argument against growth, but it is an argument against treating growth as though the word itself contains a complete strategy.

The business world has become very good at celebrating movement without always asking where that movement is taking us. We are shown rapidly expanding companies, record sales, increasing customer numbers and founders who seem to have discovered some secret pathway unavailable to ordinary mortals. Their stories may be genuine, and there may be much to learn from them, but their destination is not automatically ours. The rose-coloured glasses syndrome begins when another person’s visible expansion becomes the lens through which we assess our own business, even though we know little about their debt, margins, cash flow, risks, personal pressures or the price they have paid to arrive there.

A business can grow turnover while making less money. It can employ more people while producing less per employee, attract more customers while weakening service and win larger contracts that consume every available dollar of working capital. It can appear busier, louder and more important while leaving its owners more exposed than they were when the business was half the size. Growth may still have occurred, but perhaps the better question is whether anything of value has improved along with it.

I have seen growth pursued through discounting, tendering below sustainable margins and accepting work simply because the machinery, workforce or organisation needed to be kept busy. The monster had been built and then had to be fed, regardless of whether the food provided any nourishment. This can be particularly dangerous in industries such as construction, where large contracts, thin margins, delayed payments and disputed variations can combine to produce an impressive order book without producing reliable cash. By the time the weakness becomes visible, the failure rarely belongs only to one company because employees, subcontractors, suppliers, customers and entire communities can be caught in the ripples.

Discounting may have a legitimate place as a short-term promotional tool, just as a loss leader may be used deliberately to attract customers who will purchase other profitable products. The danger arises when the exception becomes the business model and reduced margin is mistaken for competitiveness. There is little point selling more if each sale provides too little profit to support the business making it. Activity can create the impression of progress for quite some time, but eventually the bank account becomes less impressed than everyone else.

This is where the numbers may be telling us something different from the story we prefer to repeat. Turnover is easy to celebrate because it is large, visible and readily compared with last year. Margin requires more thought, cash flow requires discipline and return to shareholders forces us to consider why the business exists in the first place. The shareholders may be the founders, a family group, outside investors or one person who has placed years of work, savings and sleep into the venture, but they remain the ultimate stakeholders for whom the dream is supposedly being pursued.

Management has a responsibility to those shareholders that goes beyond feeding the machine. It must consider whether resources are being used to create an adequate return, protect continuity and preserve choices for the future. This does not require every decision to produce an immediate profit, because sensible businesses invest, experiment and occasionally accept short-term pain for a longer-term purpose. It does require somebody to understand what the sacrifice is intended to achieve and how the business will recognise whether it has worked.

The real corner being cut is often not in production, customer service or even accounting. It is in the management thinking that should occur before resources are committed. The business begins doing before it has properly decided why, then calls the resulting activity growth because that sounds more reassuring than admitting that momentum has replaced direction. Sometimes the answer seems to be better understood before the question has even been asked, which may explain why so many businesses begin with “How do we grow?” rather than “What are we trying to achieve?”

A genuine “silent” partner would probably pause at that point. The word “silent” has always needed quotation marks because the value of a worthwhile adviser is rarely found in remaining quiet when an uncomfortable question should be raised. The adviser should not impose a different dream or tell the owner that growth is wrong, but they might reasonably ask where growth fits into the journey, why it is required and how it will improve the destination. They might also ask what happens to cash flow, risk, workload, family life, management capacity and shareholder return if the growth arrives exactly as planned.

Those questions do not take control away from the owner. They return control to an owner who may have been responding to the noise of the marketplace rather than listening to the needs of the business. Advice is most useful before the commitment has been made, while choices remain available and assumptions can still be tested without somebody needing to defend a decision already taken. After the contract is signed, the staff employed or the debt incurred, advice can too easily become an explanation of why the available options have narrowed.

Perhaps this is also where we need to stop and smell the roses, although I am not suggesting that anyone abandon the business for a life of gardening. The phrase simply reminds us that thought has value, even in a world that celebrates speed, action and visible momentum. We sometimes reduce ourselves to doing because the room appears more comfortable with activity than with questions, and questioning the growth narrative can feel almost disloyal to ambition. Yet the willingness to pause may be the very thing that protects the ambition from consuming itself.

CANEI, Constant and Never-Ending Improvement, offers a useful distinction. Improvement does not require a business to become larger every year, but it does require the business to become better at what it has chosen to do. Service can improve, margins can strengthen, waste can be reduced, systems can become more reliable and people can become more capable without turnover increasing dramatically. Growth may follow those improvements, but the improvement has value even before the additional sales arrive.

Growth and improvement are not interchangeable. A customer base can grow while the average quality of the customer deteriorates, and a workforce can grow while accountability becomes less clear. A product range can expand until customers are confused and employees spend more time managing complexity than creating value. The purpose of improvement is to strengthen the business, while growth without a defined purpose may merely enlarge whatever weaknesses already exist.

This brings us back to the Discipline of Boring, which rarely appears in success stories because it does not photograph particularly well. Reviewing margins, collecting debts, pricing work properly, preparing cash-flow forecasts and understanding the true cost of delivery lack the excitement of opening another office or announcing a major contract. They are nevertheless the activities that help determine whether expansion creates value or simply increases exposure. A business that cannot make sound money from its present work may not be rescued by doing more of it.

In What the Accountant Saw, the numbers are rarely treated as the whole story, but they are often where the story stops being able to hide. Figures reveal patterns that optimism, enthusiasm and rose-coloured glasses may temporarily disguise. They cannot tell us what the owner’s dream should be, but they can help us recognise whether current decisions are funding that dream or quietly consuming it. The accountant’s role is not to extinguish ambition but to ask whether the evidence supports the version of progress being presented.

There may be occasions when lower margins are acceptable because the business is entering a market, developing capability, strengthening a relationship or creating a platform for future returns. The decision may be entirely sound, but it should still be understood as an investment rather than celebrated prematurely as profitable growth. Someone should know how long the reduced return will be accepted, what evidence will demonstrate progress and where the line will be drawn if the expected benefit does not appear. Hope deserves a place in business, but it should not be asked to perform the work of management.

The question only the owner can finally answer is what the growth is supposed to achieve. Is it intended to create greater profit, improve security, fund succession, support employees, reach more customers, build an asset for sale or provide the family with choices that do not presently exist? Any of those purposes may justify expansion, but they will not all require the same strategy or measure of success. Without that clarity, the business may arrive at a destination that looks impressive from the road while bearing little resemblance to the place the owner once intended to reach.

It may therefore be worth examining each major decision against the path to the dream. Does it strengthen margin, improve cash flow, protect continuity or build capability that the business genuinely needs? Does it place additional pressure upon the shareholders without offering an understood return, or does it create complexity simply because complexity looks like progress? These are not questions designed to prevent action, but they may help ensure the action belongs to the journey rather than to somebody else’s definition of success.

Growth for growth’s sake can become an extraordinary waste of money, time and human energy. A sharper concentration on margin, profit, service and the quality of the existing business may sometimes achieve more than another round of expansion. The final decision remains with the owner, as it should, but the dream deserves to be pursued with open eyes rather than through rose-coloured glasses. Growth may become part of the direction once its purpose is understood, but until then it is merely movement, and movement alone does not tell us whether we are getting closer.