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The “G” Myth … Why Business Growth Doesn’t Come From Increasing Sales

by Jonathan Raymond

May 9th, 2013

 

You grow a business by increasing sales. That simple assumption is the default way most businesses operate – especially small businesses. While this thinking is almost always wrong, the real problem is that it can easily take you further from the two goals you’re probably really after, which are (1) increased profits and (2) to feel more in control of your business and your life.

Sustainable growth starts with a shift in focus – from “closing” sales to cultivating them.

There’s a more sound approach to reach those goals. It starts by remembering that building a business with solid fundamentals has a very high likelihood of attracting new customers (and keeping them), and that it almost never works the other way around. Adding sales and new customers into an unstable business will simply expose the weakness and dysfunction already there, leading to potentially disastrous results.

Next week we’ll release State of The Owner 2013 – our annual research project surveying small and midsize business. As we saw in 2012, successful owners and entrepreneurs are increasingly aware of this myth. We’re seeing an important trend – a declining emphasis on new sales tactics in favor of “deeper” organizational work. It’s a great reminder of a deep and painful pattern we encounter with many businesses – what we call the “growth paradox.”

The Growth Paradox

The Growth Paradox:
1. You want to feel in control, so the business isn’t overwhelming you like it is today.
2. You assume that the way to get there is by increasing sales.
3. Whether or not your sales actually do increase, you still feel out of control.

It’s easy to see how you can stay stuck in the loop if sales don’t increase. What’s more challenging to accept – because it goes against the “sacred cow” in our business culture of increasing the top line – is that rising sales numbers are no panacea for whatever is really ailing a business.

What happens when you add higher volume sales into antiquated back-end operations and financial systems? What happens to the customer experience if you increase the customer base by even 10% in a business being run primarily with disengaged employees? It’s like pushing more water through a leaky pipe – you can easily flood the whole building.

Things start to get dropped – errors on invoices, customer issues get brushed over, everyone is stretched even further than they were yesterday. And remember, it’s not just the new customers that suffer – it’s also your loyal long-term customers, because your team can’t take care of them like they used to.

If the investments haven’t been made for the business to scale, those new customers start driving up your direct and indirect costs (which are now skyrocketing instead of scaling) and margins get squeezed. Profits start going down instead of up. And then the spotlight gets really bright – people start wondering whether you really thought all this through. Clients often come to us in exactly this moment. It’s far from the only one, but it’s one of the ways the leadership seat gets really hot.

Low sales numbers are a real cause for concern, but they are nevertheless a symptom of a deeper issue that, if it remains unaddressed, keeps the business and the owner inside the Growth Paradox.

Don’t spend all your energy looking for more sales. Direct most of it – let’s say 75% – into driving real growth by investing in the future. Take advantage of the amazing solutions out there to streamline your operations, so they’re ready. Build a culture that really cares about your customers, so they can handle whatever comes. Become a better money manager before you have more of it to manage.

There are powerful investments – some of the best of which are free – that you can make in your business that will get you closer to your goals, sooner. Sustainable growth starts with a shift in focus – from “closing” sales to cultivating them.

Jonathan Raymond

PS: Thanks to EMyth Coach Janet Beatty for the inspiration for last week’s article.

  1. Vincent Passanisi says:

    I don’t often disagree with these articles, but this one just doesn’t match up with my experience.

    You definitely make a good point as long as the assumption is correct that the business is unstable. However, for the most part, this is patently untrue. In my experience, increased sales solves many problems that a struggling business may be having especially those related to cash flow and to employee dissatisfaction (i.e. boredom).

    Often, a sales increase, especially one created by a simple price increase, will lower the number of customer transactions. This translates to less work for more sales and increased profit. Such an increase gives you the freedom and cash to look for ways to invest in your business and take it to the next level. Just a thought.

    • Monica says:

      Both are correct in their own sense. Howevert, I believe that the focus on sales should not be at any cost, and that is what I see written in the first place. Preparation is more then half the battle. The other half, I see it to be cultivating those sales through relationships, etc. The consumer is tired of being “sold to” and a great deal is trust is needed in product and service sales to meet the consumers expectations. The average consumer is much more educated these days because of the fact of being ‘sold to’ or in many cases, taken advntage of. The averge consumer is very protective of their hold in life and we have to be more sensitive to the consumer and gain their trust. Thank you for an awesome article and an opportunity to respond to what I felt in the past until I found that building that trust is more important to the consumer. After all why are we here? For ourselves, or the other person? Just a thought.

    • Justin says:

      I’m with Vincent. The whole time I was reading this article I was scratching my head.

      I’m a big believer in systems, structure, customer service, etc. The problem is that without sufficient sales, one simply doesn’t have the funds to implement the systems. Without enough feedback from your clients/customers, one really doesn’t know what service the customer even wants.

      I guess it all just depends on what phase of the game a business is in. For me, it works something like this:

      Phase 1 – Sales, sales, and more sales
      Phase 2 – Customer service: relationship building, feedback, etc.
      Phase 3 – Use that feedback to implement systems
      Phase 4 – Use those systems to establish and monitor structure.
      Phase 5 – Repeat

    • Jonathan Raymond says:

      Hi Vincent and everyone … thanks for taking the time to comment. I was glad to see the healthy debate on the issue and everyone sharing their perspective.

    • chris says:

      ok, so sales do increase. But how about the cost of doing business, added expenditure or increase in overhead expenses? Because often times increasing sales is not the answer unless you manage and balance your liabilities that goes along with it. What you must watch is not your gross sales but your NET PROFIT! It means better watch what remains and that is your profit. Your sales may increase but your profit may already be negative!!

  2. Chris Fisher says:

    Once again zig ziglar had it right. If you help enough people get what they want, then you will get what you want. In other words, when you focus on giving your customers and your team what they want, then you will get what you want, namely, PROFITS!

  3. scott emett says:

    I have been in business for over 30 years. When I first learned about the e-myth about 5 years ago, that’s when the first real growth of my business started. It still takes reminders like this great article to keep me on track. It is so important to remember that you have to have the business systems in place before you make a sale.
    It is fairly easy to go out and get new accounts but in my business you must keep those accounts happy for an extended period of time. So it is never just one or two sales, it is an ongoing client relationship. The only way to do that is to have systems in place that include marketing, financial, and the business production. EMyth has saved my business life. I am much more free to be the owner of a business that can function without me now. I love bringing a new product to market. But I will always get it wrong if I rely on my natural instincts of what I did for the first 25 years. I will get it right if I follow EMyth plan and get the business and systems in order first and then release the product. I really enjoy and truthfully I need my ongoing relationship with the EMyth organization. EMyth has taught me to be a business owner.

    Everyday I tell myself to work on the business and not in it.

  4. Jon Golding says:

    I agree 100% with author JonathanRaymond’s comments! My business is helping SMEs that are under pressure, under performing and/or underfunded. How did they get there? In most cases by OVER trading – just the point he is making about focusing too much on increasing sales. Turnover is vanity, Profit is sanity and Cash Flow is reality!

    Cash starvation is what kills most businesses from overtrading and/or having a weak credit control system.

    The other vital point-to-the-solution he made which seems to have been missed is SCALING. Unless a business is structured for LEAN operation which is easily SCALABLE (by simple low cost replication of what works) then it cannot handle the extra orders and sales the Zig Ziglar motivated people bring in! By the way, that is the unchangeable Gerber model.

    So c’mon guys read the piece again before you jump to the wrong conclusions and get into trouble. But if you do call me!! Jon@Success100.co.uk

  5. shane stanford says:

    I generally skim through the EMyth articles but this one really caught my eye!

    Jonathan this is something that I have experienced previously when trying to assist one particluar business that was struggling. It went from a husband-wife `hole in the wall’ operation with a couple of helpers to a full blown shopfront with 6 staff virtually overnight. That business was increasing its sales exponentially by the month.

    This expansion was based on the assurance of a supplier to provide a set of products, fully built at a low cost to the owner for resale. They sold thousands that year until the supplier informed them that they were now going to send the parts and they will have to build the units themselves.

    By the second year the business was going broke and I was asked to look at what was happening.

    A totally unstable business in that amongst many other problems included no inventory, financial or sales systems, nothing integrated at all. $90k a year in advertising this product, swamped with orders they could not provide. They were actually losing money (increased CoG) on each unit because they now had to build it themselves.The owners could not recognise the simple maths on the cost of building the units themselves.

    The business collapsed for other reasons but this situation was a major contribution. This was a business that thought increased sales was the panacea to its bottom line.

    Having spent some time in economic development roles I have also seen this view. All that business owners want is for you to promote them or their town in order to increase their sales.

    Thank you Jonathan for pointing out these illusions/delusions with this article

  6. Gary Gradsack says:

    I started my servicing business 5 years ago. From our first day, our focus was on sales. We soon had more customers than we could handle and were struggling to keep up with the workload. With little to no systems in place, the cracks started to appear and we started to loosing customers.
    After a while, I finally made a decision; we were going to stop trying to aquire new customers and instead we would just work on maintaining our current customers base. Our plan is, that we will invest the income we generate from our current customers, into creating better procedures and building better systems. Once our new systems have been proven successful and and generate consistant results with our current customers, then we will then start looking at attracting new customers. As we start to grow again, we will keep monitoring our systems and procedures to make sure that they are handling the additional workload successfully. Because we will be taking things more slowly and steadily, we will be able to recognise new problems quickly and address them early.
    From my personal experience I have to agree with Jonathan, more sales does not necessarily equate a better business or a better life, especially if the foundations are poor.

  7. David Foster says:

    Jonathan,

    Another great blog and illustration.

    Maybe because I experienced the ‘we need more sales seizure’ many moons ago I totally get your points.

    Feeding gremlins lurking within the business culture empowers them to become very unwieldy-they end up overtaking everything and everyone.

    This may look great on the outset (yes! we have more sales!!!) however in the fullness of time the imperfections and lack of vision embedded in the business buy a one way ticket to a dangerous place.

    I think a lot of small business owners are so desperate for ‘growth’ they forget the importance of making sure you build a house on good foundations, not sand.

    Thanks, once again, for producing another compelling article.

    David.

  8. Bill Parks says:

    Bottom line: there is a balance focusing on the bottom line and top line…
    Bottom line: always pay attention to cash flow and profits, know the difference. Remember w/o a bottom line and negative cash flow there won’t be much time left to focus on the top line “Sales”.
    Top line: pursuing and knowing where the next sales is coming from should be top of mind “daily” for every business…

  9. Jessica Constantine says:

    Brilliant! I love your Growth Paradox concept it is so true but far too often ignored, terrific article thanks so much

  10. Joyce Vogt says:

    Just like in the investing world, there is great value in balancing growth and value in your small business. As market cycles change from growth toward value, as they have most recently, I see many small business customers rejecting the trend rather than getting on board and putting the shift to work for them. Simply focusing on “increasing sales” is a panacea, it often represents the easy way out for the business. Hard decisions have to be made when considering the question of value, ie. Have I hired the right staff? Am I engaging my customer as effectively as I could be? Is my staff being held appropriately accountable for their performance in their current role? Are there things I need to be doing to reduce customer attrition? Have I effectively deployed the latest in technology and strategy to drive greater customer attachment? These are all much harder questions to dig in to and require a much greater level of collaboration than simply throwing more salespeople at the problem. Supporting business leaders in becoming THIS kind of business leader is tough work, but it is the work that needs to be done as it will mean the difference between a small business succeeding or eventually failing. Keep up the good work!

  11. Rob Grosboll says:

    A very timely article for our company. We are in a major growth mode and have run into some of the challenges you mentioned.

    My reality is a good foundation can support so many things but only if we are beginning with the end in mind. So, I have to know I am building a sky scraper before I poor my foundation. Otherwise the foundation won’t support the new loads.

  12. Dan Bertelli says:

    Jonathan
    This is about the “G” Myth. I call it Great Myth and it is something I have been dealing with for over 50 years in business. I am going to give you some of my secret formulas for success and survival.
    In good times.
    1. Be on the frontier, try all technology that fits your business.(test first to see if it is a benefit)
    2. Review financial data monthly.(this the focal point of your business)
    3. Enjoy your success and share it with those who helped you get there.
    4. Promote your business every hour you are working.(this is the trickle down secret)
    5. The bottom line grows with success.
    In bad times.
    1. Be on the frontier, try all technology that fits your business.(test first to see if it is a benefit)
    2. Review financial data monthly.(this the focal point of your business) Make financial changes now not later.
    3. Don’t carry your lack of success home with you. It will not help.
    4. Promote your business every hour you are working.(this the trickle down secret)
    5. Success is measured by managing of the ups and downs.

  13. Eric T. Brandt says:

    Strangely enough, as I read this post I discovered a copy of the March issue of Inc. magazine next to my desk with the cover boasting “Boost your business growth in three days!”

    It’s a challenge, a balance, that is hard to manage when you’re in the weeds. Yet, completely legit and real when you’re able to take a moment and view from above.

    Would love to see more real-life straightforward comments here. Seems a bit loaded with the usual small business rhetoric and prognostication.

    IMUA!

    - Eric

  14. Steve Gannett says:

    A “Like” for Jonathan’s column.

    In July of 2007, we experienced our biggest sales month in our 26 year history. However, the profit wasn’t in line with the sales figure.

    Why? Simply because our costs of goods were out of control.

    We can now sale and ship 20% less and make the same “July” profit.

    Why? Because of the systems work we put in place (under the able guidance of E-myth Coach Adam Traub).

    Nothing beats increased sales…as long as your systems allow you to turn those sales into profit!

    Thanks again, Jonathan!

  15. Richard Plank says:

    Nice article Jonathan. As an academic with significant practical business experience as well as consulting on my Vita I often marvel as to why we even need to write these articles; it is just so obvious. Yet as I tell my sales students have are a list of books you want to read everyone one in a while to remind you what you are doing.

    With turbulent environments we all face including those of us in higher ed, getting the basics down is even more important.

    So I think as Jonathan suggests and other comments definitely attest to you need to keep a balanced perspective in order to grow your business.