The reality is, is if you haven’t set your business up to accommodate or to handle that growth,  you might find yourself breaking 

HOW DO WE DEFINE GROWTH? 

Growth is important because if you don’t grow, you die. This is the common thing. But the question is, what are you growing? Are you growing your top line or are you growing your bottom line? Are you growing a gross margin or are you growing your net income? It’s very important that the organization understands what exactly they’re trying to grow. 

WHEN IS GROWTH NOT GROWTH? 

I’ve seen companies grow, create a demand, and then not have sourcing of the product that they just created the demand for. I’ve seen companies grow and create a demand and not have the capability of delivering the service levels that they promised their customers that they could deliver at.  And in each of those considerations, or in each of those situations, I found that those companies were trying to figure out after the fact what went wrong. 

HOW IMPORTANT IS A STABLE FOUNDATION FOR GROWTH? 

You’ll hear terms in business about scaling. You’ll hear terms in business about infrastructure. 

The reality is, if you haven’t set your business up to accommodate or to handle that growth, if you haven’t established that framework in which you’re going to grow, you might find yourself breaking and it might be more costly than had just stayed the same. 

HOW DO WE APPROACH GROWTH? 

The best way to determine how you want to grow is through modelling. And I hesitate to say how many clients say you can’t plan because you don’t know exactly what’s going to happen. That is probably the most disappointing thing for me to hear from an executive team, and the hardest thing to overcome as a financial leader guiding a company. The important thing for you to understand in determining how fast and how we grow is, what are the implications of growth on the cost structure and the capital structure of our business? How do we finance that growth? All of that is down to the models that you build in order to do it. So if you build good models, you’ll come up with good answers and you’ll make good decisions. 

HOW DO WE GROW, ORGANIC OR INORGANIC? 

Well, the primary difference between organic and inorganic growth from a definition perspective is that organic growth is growth of an organization based on existing resources within that organization, and or investment in your current resources in an organization. Inorganic growth typically, is tied to corporate development and or mergers and acquisition activity. Whether you affiliate with another organization, whether you require another organization where the merged with another organization. Those are your primary differences. 

HOW DO WE GROW, VERTICAL OR HORIZONTAL? 

Vertical expansion is when you actually expand your service and or product offerings along the value chain. The value chain being if, for example, I’m in retail and I decide that I’m going to go into product distribution, if I want to go one step further and I go into wholesaling, or if I want to go one step further and I might go into manufacturing and raw material sourcing. That’s sort of how vertical expansion sort of plays out. Where are you going to play on the value chain within what you offer your customers?  

Geographic expansion is exactly that. Are you going to move into other markets? Are you going to go into other markets domestically within the company country in which you operate, in this case Canada, or are you going to expand geographically across North America and or internationally? And in each case, you then have to make that organic, inorganic decision. Am I going to set up a workforce and or a sales force in another market, or am I going to go into that other market and hire reps, or am I going to buy a business in that market and immediately expand geographically? 

HOW DO WE FINANCE GROWTH 

Oftentimes growth comes with capital requirements and when one thinks about the cost of capital, one applies weightings to debt and equity. And when applying those weightings, your contemplation is the cost of debt versus the cost of equity. So you have to make a decision. You’ve got to again, I go back to because I can’t leave out the importance of the modelling. Your modelling will tell you whether or not you can service the debt. And if you can’t service the debt for the capital required, you have to seriously consider equity. And you have to consider what you’re willing to give up. And that’s what strikes that balance. 

THE ROLE OF A CFO 

In my experience as a CFO, the role that I’ve had to play in the role that I think good CFOs play in the growth contemplation is that they often provide an unemotional balance to the drive of CEOs, sales leaders, marketing leaders.  I’ve always had this advice to CFOs that says if you focus on the minimum worst outcome, you’re likely going to get to the best outcome. And a CFO’s role is to be a contrarian in light of a whole lot of optimists. They provide the background and the support to drive the conversation. 

FINAL THOUGHTS 

I remember being brought into a half a billion company and asked to take the reins as CEO. This was a business that had been around for probably 9 or 10 years, and they had just had a big loss year. We had an owner who believed in growth. He grew for growth sake, and two years later the business was 40% of the size it was. We were down to about 180 million in revenue, and we were multiples more profitable. And for the next 3 or 4 years, we built it back up to about a $400 million business, but this time profitably. 

 So I would say when you’re thinking about growth, make sure you understand the implications of growth. In their case, they grew on a weak foundation. We went in, we fortified the foundation and we grew again in different markets, different verticals, same underlying business, significantly more profitable.  

Know why you’re growing, know how you’re going to grow and know what could go wrong during times of growth.