Creating businesses and launching food brands along the path from the test kitchen to the shelf to the consumer’s plate

Friday, December 6, 2013

When Starting a Business Do You Focus on Growth or Profits First?

The Question is More Complex for Family Run Food Businesses 

I read a LinkedIn post from Founding Principal and Owner, Stage 2 Planning Partners.
He posed a question "Here's an age old question.....Do I grow my business quickly or do I first concentrate on profits/cash flow before focusing on growth. I think the answer is it depends on who your financial stakeholders are. I'm curious on your opinion."

His article, Profits First, Growth Second summarizes "Profits must come and come quickly or you and your business could join the 95% of businesses that don’t exist five years after they start. - niche"

My Opinion Growth vs. Profits

There is no easy answer and I find too many people in business or writing about business try to come up with simple formulas. If business was a formula, most of us we be a success starting a business.

It rests on many factors... 
  • One would the the cash breakeven forecast vs. the amount of cash one has to fund cash losses.
  • If the business is in a sector that requires one to be a first mover, then growth comes first... once again assuming  the mount of cash one has to fund cash losses.
  • If a business is in sector where supply chain domination creates a major barrier to entry to competition, then it's growth again. Amazon is the logical example... they are building out regional distribution centers (DC) at an accelerated rate. DC's are expensive and make it difficult for other start ups to enter the business.

Family Business is Different

Family business is a mix of Business, Family and Ownership. As you can see from the Venn diagram it is that intersection of Business, Family and Ownership that makes the Growth vs. Profits question all the more challenging

If you ask the question "Why Does This Family Have This Business?" Typically the response is for the benefit of the family.

Now that could be either:
  • A safe place for employment for family members... an extension parents taking care of their children
  • Creating a valuable asset that can be passed on to family members

Either of the above can get in the way of the profit focus since there is a highly emotional component to safe employment of passing an asset.

There are numerous variations but I think this is a succinct way to look at Growth vs. Profit.  

What More Information?

Need some help with your family food business? Drop me  an email and let’s chat.    

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