When I first sit down with business owners, I immediately try and get a feel how they approach business. Sometimes it’s very clearly evident in how they speak and as I see their vision and approach toward the future of their organization. Other times, it’s hard to tell exactly their methods and definition of growth.
It’s in their approach, however, that determines the lens in which they view and execute upon every decision in their business. The answer to one question I ask always informs me a ton in how they approach investing into their people, processes, technologies and beyond. It tells me if they’re in it for the long-game or for shorter-term success.
What’s your approach to business; Are you squeezing for profit or are you reinvesting for growth?
Now, neither answer is wrong, but it provides me a super clear picture of how they work through decisions in their business, as well as how far down the road they think and plan.
The Two Approaches
When a business owner is squeezing for profit, you’ll see them hesitant to pull the trigger on new people and resources. They can tend to be stuck in the present with the obstacles that currently exist. You’ll see them struggle, getting in over their head, knowing they need help and having to make some changes. They try to squeeze every bit of cash and profit from the business, typically.
On the other hand, when an owner is reinvesting for growth, they are leveraging debt and making long-term investments and decisions for the future of the business. Many times, they are spending money they don’t necessarily have at the time, but know the ROI on the investment they’re making or considering with payoff in the end. They typically have a very clear vision and roadmap of necessary people and resources to get them to the next step.
The Positives and the Negatives
When an owner squeezes for profit, the biggest obvious benefit is that they are usually paying down debt faster and are pulling money out that they can use personally as the owner. They are also usually limiting the risk of getting too far in over their head financially with too much debt. On the other hand, because they can be so risk averse, they may also be drowning without enough resources and capacity and will get lapped by the competition that is leveraging debt to grow and go next level.
The reinvesting for growth approach by an owner can cause explosive growth for a company and can move things ahead very quickly. Obviously, this can be awesome, or it can also be a huge challenge trying to ride the T-rex that the business can become. Also, much risk can quickly develop if investments without the proper ROI are incorrectly made. It may also be difficult to truly determine where one is at financially while moving and growing so quickly.
Overall, as you can see, there are both positives and negatives to both sides of this equation. What’s important to you as a business owner, is that you’re considering the long-term plan, as well as the exit strategy, for your organization.
What are your long-term goals, and how do you see yourself removing yourself from the business? When squeezing for profit, the reward is found along the journey. When reinvesting for growth, it’s usually found at the end of the road with the long-term play.
CONTACT US to learn more about how we can help your business and people grow to the next stage or guide you through exit/succession.