Most companies are in pursuit of growth, as they assume growth means success — but that’s not always the case. How do companies determine whether they are succeeding as they continue to scale?
When the Kauffman Foundation checked up on the 5,000 companies that made Inc. Magazine’s fastest-growing list, it discovered that a mere five to eight years later, two-thirds had shrunk, closed their doors, or been sold at a loss. Clearly, growth isn’t everything.
The bigger a company gets, the more difficult it becomes to execute strategy and make significant decisions with complete confidence. Managing 50 employees is doable — challenging at times, but doable. But 1,000 employees or even as few as 200 spread across multiple offices? That’s much more difficult. Company leaders need to know whether the business is truly doing well or advancing with surface-level progress.
Whether a company is succeeding depends on multiple questions. Some are easy to answer, like measuring revenue or profitability. Some are more complex, like determining whether the company is on track to continue delivering great products that customers love. Both qualitative and quantitative analysis come into play.
With so many different factors to consider, how do companies know whether they’re growing well or just growing?
Getting Up Close and Personal With What Your Growth Truly Means
Every company has obvious “first-level” key performance indicators (KPIs) to determine health. Things like financial performance, customer satisfaction rates, and employee engagement fall under this category.
Depending on the type of company, these first-level indicators can include metrics like revenue growth (CAGR), monthly recurring revenue (MRR), net profit, lifetime customer profitability, retention rates, and employee satisfaction, to name just a few. The specific metrics depend on the type of company and its goals — it goes without saying that a disruptive startup and more stable mid-sized companies will see different metrics.
Performance indicators begin to differ even more as companies begin looking at the distinctive aspects of their business. For example, Dell and Apple both make computers, but the former focuses on operational excellence while the latter prioritizes innovation and user experience. Depending on a company’s mission, values, and objectives, its performance indicators will differ vastly from those of other businesses. Given this, firms shouldn’t be looking for a one-size-fits-all set of factors to determine whether or not their business is growing well — in order to answer those elusive “How do you know?” questions, they need to be reflective about what contributes to their success in varying areas.
One of our clients, a financial services firm, has its division managers report every month on each of the company’s divisions’ failures (not just their successes). They include a dissection of what went wrong and why, which helps company leaders see how division leaders handle problems and reflect on challenges. This also allows leadership to step in when division leaders need assistance on complex issues.
It’s About the Right People in the Right Roles
The key reason this client has been so successful as it has grown is that it has ensured the people it hires are leading well. Putting the right individuals in the right roles comes first; everything else follows.
If the key challenge is determining which indicators project how well the company will perform in the years ahead, the most important box company leaders must check off — as they no longer have direct oversight — is to ensure they have the right people throughout the company’s leadership hierarchy, each focused on the right things and excelling in their respective roles. In other words, if the context is not only about growing, but also growing well, company leadership must understand how to focus on the right things while delegating direct oversight to other division leaders.
To determine whether people are in the right roles, executive leadership must lean on data to analyze whether division leaders are executing on what’s important. This is a combination of leadership’s established metrics as well as division leaders identifying the goals and metrics important to their division’s success. To truly help the business in its growth efforts, each division needs to track its own key goals and metrics and fold that into the company’s overall goals.
Despite the obvious benefits, in a National Small Business Survey conducted by Staples, more than 80 percent of small business owners admitted they do not track company goals. As companies grow, we have seen that this does not drastically change. This is an enormous hole that will inevitably affect smaller businesses’ understanding of their health as they scale. When setting and reviewing progress toward goals can increase outcomes by 95 percent, according to a study by The American Society for Training & Development (now known as Association for Talent Development), it sounds foolish to not do so.
The key to this strategy is empowering departments to self-report on relevant KPIs and probing where necessary. C-suite leaders and upper management cannot micromanage reporting, or they will force units to show them the numbers they want to see. Leaders must learn to synthesize the most important performance indicators the company has defined for itself and communicate findings back to company leaders.
Focusing on only the obvious metrics feels good when numbers look strong, but failing to dive deeper into the health of growth is a quick path toward joining the two-thirds of growing companies that meet unsatisfactory ends. To grow well, top leaders — and their leaders throughout the organization — must keep proactivity as their main priority. With a clear strategy, concrete goals, and metrics throughout the organization and with leaders at all levels held accountable, executive leaders can guide their companies toward sustainable, healthy growth.
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