Too often, business leaders are obsessed with success and hyper-growth. Small businesses that grow slowly often go unnoticed, and we think they don’t matter.
But, is rapid growth truly the be-all and end-all of doing business today? The truth is, it can bring loads of problems. From poor team morale to layoffs, and even the dreaded bankruptcy. It’s pretty bad, right?
That’s why prioritizing sustainable growth is the way to go if you crave long-term success.
Curious about how it all works with steady expansion? Well, you’re in luck. Today, we talk about the benefits and tactics of sustainable growth, among other insights.
What Is Sustainable Growth: The Definition You Need
Sustainable growth is a more reliable way to develop a business in the long run. See what’s the sustainable growth definition and how to calculate your rate.
A company’s sustainable growth is all about having the highest sales increase without relying on external capital or debt. Forget about rapid growth that focuses on short-term goals that leads to chaos.
Instead, focus on the long game.
Take small, deliberate steps, and implement your tactics to achieve smaller goals. It’s through these continuous improvements that you’ll pave the way toward pursuing your high-level strategy. Sustainable growth is the key to building a strong business that stands the test of time.
Karl Robinson, CEO at Logicata, shared how his company chose a steady expansion:
“Sustainable growth allows us to retain control over operations and prioritize customer satisfaction, resulting in better service, higher retention rates, and positive referrals.
Rapid expansion requires more capital investment, leading to higher debt or equity financing. Sustainable growth prioritizes profitability and minimizes the risk of over-leveraging the business.”
From my experience as an entrepreneur, I see that steady growth gives confidence and happiness. Because hey, you’re more likely to achieve your goals if you have some time to actually make all that stuff happen.
Thus keep the right balance between growth, profit margins, and risks. It will help you make your business resilient to changing market trends or economic conditions. That’s especially true considering today’s economy.
Lastly, sustainability in your growth isn’t only about money. It’s also about the quality of your product and customer support. Remember, if you make your customers happy, they’ll likely come back for more.
Alright, so how can you actually calculate a sustainable growth rate? Let’s see!
What Is Your Sustainable Growth Rate (SGR)?
To calculate the rate at which your business can grow without external financing, you’ll need the following:
SGR = Retention rate x Return on equity (ROE)
How to Calculate the Retention Rate?
Your company’s net income can either go to stakeholders or stay with you. The retention rate is the percentage of how much of your net income stays within your company and how much is paid out as dividends.
Companies that grow rapidly keep most of the capital while more mature companies keep the balance between those two.
Calculate retention rate in the following way:
Retention rate = (net income – dividends) / net income
Say that your company is generating a $10,000 net income and wants to pass $3,500 to shareholders and retain the rest.
Your retention rate = ($10,000 – $3,500) / $10,000 = 65 percent
The dividend payout ratio is one minus the retention rate (percent). In this case, it’s 1 – 65 percent = 35 percent.
How to Calculate Return on Equity (ROE)?
ROE is an important indicator of the attractiveness of your business for shareholders. If the company generates a good return on the money your investors put into the business, it’s all good.
Return on equity (ROE) takes into account net income and shareholders’ equity, here’s the formula:
ROE = net income / equity
Say your company can generate $18 for every $100 invested, this means your ROE equals 18 percent.
Now you have everything to calculate your SG rate. Simply multiply the retention rate by the return on equity.
Based on the examples above, you have 65 percent of retention rate and 18 percent of ROE. This means your SGR = 11.7 percent
So 11.7 percent is the maximum increase in sales your business can achieve without the need to get additional debt or equity.
SGR is one of many metrics you should be looking at when checking the overall health of your business. Abhishek Shah, founder of Testify, adds metrics they use to assess the health of their business:
“We use two key metrics that show us if we’re growing steadily:
- Monthly recurring revenue (MRR) growth: This metric shows the consistent increase in revenue from month to month.
- Customer retention rate: A high customer retention rate demonstrates the value our products/services provide and the satisfaction of our customers.”
So, keep an eye on the most important metrics that tell you if your business grows steadily and can stay bootstrapped in the long run. Now off to the benefits a steady growth brings.
5 Benefits of Sustainable Growth That You Should Know
Still wondering if sustainable growth is for you? So take a moment to recall those players that grew too fast and failed. If Zynga, Wise Acre Frozen Treats, or 180s ring a bell, you have some food for thought.
But if you’ve already decided to go down the steady growth path and are here for a more in-depth look, read on.
Stable Growth Improves Financial Stability
By getting on a sustainable growth bandwagon, you let your business maintain financial stability. Instead of burning too much cash, you keep everything under control.
While rapid expansion could work financially for a couple of months, later on, it could become a roulette that puts you into debt.
Sustainable growth is slower but offers less risk. It also builds strong fundamentals that will support your business long-term. No matter if the economy is bad, there is a new disruptor on the market, or something unexpected happens—you’re covered.
Sustainable Growth Helps Retain Customers and Build Relationships
Alright, let’s dive into the world of steady growth and the secret ingredient it demands: top-notch product quality. And when your product is great, your customers will love it and trust your brand. And that trust is pure gold when it comes to nurturing long-term customer relationships.
But here’s another thing for you: investing in customer support. It may not be the flashiest move, but it’s a solid brick in the foundation of slow-yet-steady expansion. Ensure that your support team addresses every single concern your customers have. That’s how you guarantee peace of mind for both sides.
Armed with a product of great quality and backed by knowledgeable support, you’ll have the power to retain customers. They’ll stick around longer, knowing that you’ve got their backs. When your customers are happy with what you offer, they won’t be able to resist spreading the good word.
Sustainable Growth Slashes Employee Turnover Rates
Here’s the deal: a healthy business keeps employees happy and motivated. When they see your company thriving, they’ll contribute to its success. Plus, low turnover rates save you big bucks. New recruitment cost between one-half to two times the employee’s annual salary according to Gallup. Yeah, that much.
So, invest in your team, and watch your business grow.
Sustainable Growth Supports Business Efficiency
Sustainability goes hand in hand with thoughtfulness, and there are many smart investments you can make in your business. Let’s explore a few key areas:
- Consider updating legacy code. It may not be the most glamorous task, but modernizing your codebase contributes to product quality.
- Investing in creating Standard Operating Procedures (SOPs) can work wonders. Documenting and optimizing processes makes your team focused on their work.
- Getting new tools helps your team achieve their goals easier.
- Automate some stuff to unlock some time for more creative tasks.
Plan these improvements to optimize your business growth while minimizing strain on your budget. Within a few months, you’ll witness returns on these investments. So, embrace sustainable growth and watch how your business gets better.
Sustainable Growth Reduces Risk of Startup Failure
You’ve probably heard of businesses that leaped blindly into hefty investments, only to discover a poor fit for the market. Sustainable growth stands on the opposite side of this risky spectrum. Here, you don’t dive headfirst into uncertain ventures.
As you invest in business sustainable development, you mitigate the risk of failure. It means you’re avoiding over-hiring or expanding into new markets without thorough research. There is no space recklessness, yes!
Instead, invest small amounts and swiftly validate ideas with customers. Seek product-market fit, ensuring the offering resonates with your Ideal Customer Profiles (ICPs.) Test, learn, and adapt, all in pursuit of building a solid foundation.
Sustainable growth isn’t about blind leaps. It’s about calculated steps, minimizing risks, and keeping a keen eye on the pulse of the market.
Shaunak Amin, CEO of SwagMagic chimes in with his experience from his early days at a startup:
“Early sales typically come from people motivated to be early adopters. While these consumers are eager to be the first to try new products, they are a subset of your customer base that can skew your sales projections. And scaling your business by taking on additional inventory, overhead, and salaries based on these early projections can cause your cash flow margin to become unsteady.
Ensuring product-market fit is crucial to risk management. We were able to mitigate risk by using our primary business as a launchpad for our sister brand, SnackMagic. Customers were on our website just looking before we even launched, and our first order came within three weeks.”
Now, off to five tactics that will boost your steady growth.
5 Tactics to Help Your Business Grow Sustainably
Want to pave the way toward growing a healthy business? Grab these five tactics and put them into practice.
Focus on Your Team’s Competences and Niche Know-how
The key to success lies in identifying your employees’ core competencies and using your business’s unique know-how. By focusing on developing and enhancing these strengths, you set yourself apart from the competition in the market. It’s all about consistency and ongoing investment in your team.
By doing so, you can get ahead of the game, offering top-notch products and addressing the pain points of your customer base. You should know them really well. You’d be surprised how many of your competitors don’t talk to their customers.
Now, let’s talk about niching down. Spend time to get expertise in one area over having superficial knowledge across various fields. Here’s the beauty of it: when you immerse yourself in a specific niche, you can put all your time and energy into crafting an expert product.
Build a Strong and Loyal Team
Without your team, you won’t build anything meaningful, not to mention grow sustainably. As employees are your best asset, train them, offer them perks, and overall, keep them happy.
After all, they work hard and build, support, and market your product. By improving their skills, you’ll also help them enjoy their work more which turns into higher job satisfaction and retention. And a team that feels good will stay longer and won’t leave you when something goes south.
Here’s an early-stage startup experience from Norbert Raus, CEO at Alphamoon:
“Shared vision, genuine passion, and lots of hard work are some of the most noticeable traits of startups that grow steadily. To grow steadily, ensure you surround yourself with the right people. The most devoted, eager-to-learn-minded people—people who want the business to succeed more than you. People who won’t abandon you if you don’t blow up in six months, but the ones who take pleasure and honor in the work they put in.”
Use Data to Inform Your Decisions
Whether it’s about qualitative or quantitative data, inform your decisions whenever possible with data. By this approach, you’ll identify:
- Areas to improve.
- What challenges your business is facing.
- Where numbers look different than in the prognosis.
Gather and analyze customer feedback and new business data. If you still have a small base, reach out to individual customers to talk to them and gather qualitative insights. Hire somebody who will deliver you market research and take into account those findings. Sustainable growth is based on careful calculations, so try to follow rather conservative scenarios in your prognoses.
Invest in Organic Growth
While paid media is a quick win for many companies, organic growth is a more sustainable way to increase your visibility online. It takes months to set an organic presence, but with effort and a bit of patience, you can build something that will last. This means investing in your organic content on LinkedIn or other social media platforms and creating content on your website.
Nikki Halliwell, a Technical SEO Consultant adds to this:
“Organic growth has been the best, steadiest approach for me to take. This has involved publishing content and building backlinks consistently, and done periodically over time.
Yes, growth is slower than if I were to allocate budget to paid media, however, the growth is manageable and allows me to be in a much better position to my competition 12+ months down the line, as I’m not just relying on a paid media budget to obtain leads or conversions… The work has meant that this now comes organically.”
Build Replicable Sales Cycles and Retain Customers
If you want steady growth, you have to set sales processes in place that give you predictable revenue streams. Look for your current sales processes and check if they work well or if you need to make tweaks.
If your salespeople know exactly what to do, when, and how, they can improve their efficiency, sell more, and ultimately grow the business.
The same applies to your customer support team. While acquiring new customers is exciting, retaining existing ones is equally important. Prioritize customer satisfaction, resolve their issues within 24 hours, and cultivate a loyal customer base that will continue subscribing to your product.
Another excellent way to build your sales is to set up partnerships. This enables you to sell to customers whom you wouldn’t otherwise reach. Also, partners can add customized setups of your product among bigger customers. This way you can get great referrals and positive reviews that ultimately support your stable growth.
Sustainable growth = Long-term growth
While rapid expansion may dazzle and tempt, sustainable growth is the true path to long-term growth. Focus on the core skills of your team. Invest in their training and development and keep them happy. And let data guide your decisions rather than hunches.
And as business owners, evaluate your growth strategy each quarter to see which tactics work and which fall short. Choose sustainable growth over rapid expansion and build a business that will thrive in the long run.