Sunil Dias speaks about how COVID has affected the economy and mentions certain indicators that could help to bring businesses back on the growth charts
Yeh dil mange more was the famous Pepsi slogan from the late 90s. One of the reasons it became a runaway hit was the way it played on our obsession for growth, for always seeking that little bit more. This obsession with growth is there in all spheres of our life, whether it is the hunger for more GDP or a bigger car or house or more money or a bigger business. Growth has strong perceived linkage to prosperity.
This obsession with economic growth is recent. Till the 18th century, the population hardly grew. Nor did the economy. For most people, the clothes on their back and a few pots and pans were the bulk of their possessions. So, things were stagnant. Other than ambitious kings, everyone pretty much remained at the same place. Economic growth started with rising consumerism in Europe that drove a cycle of growth. A lot of this demand was based on unimportant stuff, such as silk slippers, suede gloves and fancy butter dishes. Yet, as Bernard Mandeville argued in his 1723 book The Fable of the Bees, what made countries rich was ‘shopping for pleasure’. It’s the consumption of the seemingly silliest things that makes economies grow. The only way to generate wealth, argued Mandeville, was to ensure high demand for absurd and unnecessary things. Even the concept of GDP is fairly new. Developed by Simon Kuznets in the 1930s. It was only after World War II that it entered the mainstream and grew to become the universal measure of the growth of the economy.
The pandemic has thrown all growth out of the window. GDP has degrown across the world. Most companies, other than a lucky few, have degrown. In some cases, the degrowth has been off the charts. In these uncertain times, how do businesses decide whether their growth (or degrowth) is par for the course? I don’t have an answer. Yet, there are some indicators of ‘good growth’ in the past. If you find these indicators for your business, it’s very likely your business will be back to growth soon.
Indicator 1: A Happy ecosystem
A happy ecosystem is the best indicator of sustainable growth. Your growth should have kept you and everyone else happy- or at least not sad. Why? If everyone’s happy, it indicates a sustainable eco-system. If suppliers are not happy with payment timelines, chances are they’ll drag their feet on the next order. If a customer feels cheated, they’ll move to available alternatives. If employees have increased work pressure with increased growth, performance may suffer, or their growth in the organization is out of sync with business growth. Long story short, it pays to keep everyone happy with your growth for it to be sustainable.
One warning – differentiate between inertia and happiness. Everyone’s happiness shouldn’t be at the cost of future growth. Many companies showed excellent growth, with all stakeholders apparently happy. Suddenly the ground opened beneath their feet. They were too content with the current situation. Nokia is a telling example. They moved from being a fast-growing company with happy employees to zilch in a short period.
Indicator 2: Consistent Growth
Consistency is important. Other than expected or explainable seasonality (or pandemics!), there shouldn’t be troughs or peaks within or across years. Inconsistency is bad. You swing between understaffing (hunting for employees) to overstaffing (underutilized employees). You swing between periods where suppliers want to dump stock and where you want stock but the suppliers can’t or won’t provide you with it. Roller-coasters are fun, but not for your business.
Indicator 3: Profitable Growth
Profitability should not take a beating at the altar of growth. Selling at the cost of margins is an easy game to get in, but very difficult to get out off. Unless, you were pricing at a premium and are reducing the premium due to the product / service life cycle, don’t use price as a lever to spur growth.
Some of the e-commerce businesses are examples of how not to do it. Growing at the speed of light and losing money at a similar rate. It could be argued that valuations of some of these loss-making companies is through the roof. But those are the exceptions rather than the norm. The private equity players bought into Flipkart, assuming they would sell to a larger player – and they found one in Walmart. So, unless you are looking at playing the valuations game (or have very deep pockets!), a general rule is to never lose money on a sale.
If you’re profitable, just make sure that the profits don’t just remain on the books. Businesses need cash. As someone once said: Turnover is vanity, Profit is sanity, and Cash is reality.
Indicator 4: Knowing why you grew
It’s easy to celebrate good growth. And why not? Yet, it’s critical to understand and analyse reasons for growth. If there’s no answer, the growth is not sustainable. It is also crucial to analyse flat or negative growth. This normally happens at a superficial level and often results in a blame-game. Sales personnel not selling, GST implementation etc are few examples. Yet, try to go beyond the surface while analysing poor growth, separate the controllable and uncontrollable factors from each other and plan and implement interventions in the controllable factors.
Summary
Some businesses take a conscious decision to grow slow. Slow growth allows for a personalized experience for customers and (possibly) better quality of life for the promoters. Yet, be wary that it’s not a symptom of inertia or conservatism. Some big names have gone under by not moving fast enough and responding to market needs. Not planning and executing everyday is the biggest risk, even if you choose to grow slowly
The author runs iv-advisors, a consulting firm helping businesses become bigger and better. Email:sunildias@iv-advisors.com
