Growth vs Profitability: Does your Business Need to Pick a Lane?
When small to medium sized property management companies are looking to strengthen their industry foothold whether they’re just starting out or revaluating their strategy, businesses often have to choose between growth or profitability focus. Because of the crowded nature of the property management industry, selecting one or the other can be particularly daunting, so it’s important to think long and hard about the best option for your company.
Here’s what you need to know to help pick the right strategy for your business:
Profitability is the outcome most people starting a business seek, so it would make sense that they choose to focus on maintaining a profit. A strategy focused on profitability gives businesses the capital to ensure organizations stay financially viable. A profit-first approach allots executives more control over what will happen because it enables a business model that offers negotiating power with potential investors. However, putting income before expansion can lead to slow momentum compared to competitors. When businesses can’t secure a strong position within their market or brand recognition they risk fizzling out.
Newcomers often foray into an industry with growth as a driving motivation. Sometimes they adopt a loss-leader approach or a “grow at all costs” strategy to establish a strong customer base, as well as improved brand identity, to establish more revenue sources before adjusting their focus to profitability. A “grow at all costs” strategy is common among start-ups these days, 83% of companies that went public in the first nine months of 2018, were not profitable during the 12 months prior to their initial public offering. A growth focus can help companies quickly gain traction and brand recognition within their market which can attract potential investors fast, helping to, not only replace capital spent on quick growth, but improve profitability in the future.
A growth first strategy can be beneficial by unlocking fast, wide-spread media attention and industry recognition, but the potential downfalls make it a risky choice. Businesses leveraging this approach can easily expend resources too quickly leaving minimal capital as a cushion for emergencies or unforeseen situations.
Growth consultant, George Deeb, says, in general, organizations cannot simultaneously adopt a strategy that focuses on both profitability and growth. But with real pros and cons to both options how do you choose?
Asses your industry and your current position within it. In doing so, you should be able to quickly pinpoint the most important elements to your strategy will be.. Do you need more profits before you can grow? Do you need to establish a stronger brand in your market? What kind of investors do you want to attract? Also, consider evaluating your strategy based on the most important goals for your business in the short term, sometimes thinking too far ahead can keep operations disconnected.
In isolating these targets and expectations you can work backwards to determine which should truly be your focus. It’s important to remember that it won’t have to be solely growth or profitability forever. You can switch but these strategies need to be adopted for a long enough period that they can gain momentum.