Earlier this week, Dell announced that it would no longer place as much focus on its market share, instead focusing on profits. The market cheered this announcement. "Unprofitable growth for the sake of growth is really not a good strategy," said Marty Shagrin, a research analyst at Victory Capital Management Inc.
What are the right metrics for your business? Here are some of the most common:
- Revenues/Revenue Growth
- Profits/Profit Growth (and there are many definitions of "profit" to choose from)
- Stock Price
- Cash Flow
- Enterprise Value
- Market Share
- Day Sales Outstanding
- Rate of A/R
- Rate of A/P
- Subscriber Growth
Some of these metrics are more important than others, depending on your industry or stage of organizational development. However, all are important. Organizations do themselves harm when they overly fixate on one and only one of these metrics. To most effectively steer your organization, you need to look over your business as an airline pilot surveys his/her control panel -- constantly scanning a range of indicators.
However, too many companies these days -- especially public companies -- are finding themselves caught in "the growth trap." 'We need to grow at [pick a number between 10 - 20]% this year.' Why? I've heard explanations ranging from "we'll be acquired, if we don't" to "our stock price will tank, if we don't keep up this pace."
Of course, keeping up a pace of X% a year gets more and more difficult with each passing year. Smaller, tuck-in acquisitions must yield to larger and riskier acquisitions. Few if any acquisitions done in the name of growth pan out. Culture clashes, unexpected surprises that you didn't get what you did they deal, and painful IT integration are some of the most common heartaches experienced for years after these "quick fixes" in the pursuit of sustaining a high growth rate.
The truth is that, whether you are Dell or a 100 person company, growth is only sustainable when it is profitable and a good cultural, as well as strategic, fit with your existing business. A pursuit of market share and an outsized growth rate year-on-year is a warning-sign for any investor that trouble is ahead. Although it can't be reported in a newspaper headline, all organizations must focus on all key financial metrics. Progress on a range of metrics is proof that a business is growing in the way that will last for more than a few quarters.