Ask any entrepreneur about their business goals and the No. 1 or No. 2 answer is going to be something around growth. In my entrepreneurial circles, the questions are, “How much revenue do you have?” or “How many employees do you have?” Never, not once, have I asked the question, “Yeah, but how much money did you make?”
It is easy to grow your top line; just lower your prices. It is also easy to increase your employee headcount, just write a paycheck. You see the problem with this; it is not a sustainable business model. Your business will fail by focusing only on top-line revenue and employee headcount. As my colleague Alan Miltz says, “Revenue is vanity, profit is sanity, and cash is king.”
So, how do you achieve both growth and profitability? That is the real problem entrepreneurs face. You can’t just grow top-line revenue and say to yourself, "Profit will come later." I have done that in the past, and I was lying to myself. It was an easy excuse for not doing the hard things.
According to the modeldefined by Daniel Marcos of The Growth Institute, businesses need different strategies for profitable growth depending on where they are in their development. Marcos classifies businesses by number of employees into “startup” (1-5 employees), “grow up” (6-15 employees) and “scale-up” (16-100 employees). This is because employees are a better measure of the complexity of the business than traditional metrics like revenue, which can vary depending on industry.