Growing Pains

Last week I finished re-reading one of my favourite books.

Enough: Breaking Free from the World of More, by John Naish.

"Turn it up" I hear my mates shouting.

"Easy for the bloke with the wife earning all the money and full-time home help to start pondering that more isn't the answer".

Hard to argue with that.

One of those mates was the one who recommended the book about a decade ago and we both agree it's brilliant.

Funnily enough, he's currently considering acting on financial advice to start building a new investment portfolio using leverage secured by equity in his home.

Isn't pursuing a strategy to grow financial wealth, if your current circumstances can fund it, a no-brainer?

Or in business, isn't financial growth the ultimate obvious objective of all enterprises?

Not if your name is John Naish.

Or me.

The purpose of this article isn't to get you to buy the book or to suddenly stop aspiring for financial success.

But I would like to position two questions that can help us make better decisions of priority - and goals - in business and in our personal lives.

Why, why, why?

Let's pretend I'm meeting with a CEO.

CEO: "We want to double our revenue by 2026".

Why?

CEO: "Um, obvious isn't it: more revenue, more profit".

Why?

CEO: "Aren't you a CPA? Generally, you make more revenue, it leads to more profit, and our owners want more profit".

Why?

CEO: "You are possibly the worst CPA I've ever spoken to".

Jokes aside, it might be obvious that business owners and shareholders prefer more profit to less, but to what end?

More for the sake of more is no more sophisticated a strategy than what a toddler has in mind when they are face deep in a bowl of ice cream.

Business owners who have control over their own enterprise at least have the potential to set business financial objectives in line with their own, and their own broader life goals.

But many don't capitalise on that potential.

Even if they do, sometimes the decision to pursue more growth is made without sufficient focus on underlying return metrics, like Return on Equity (ROE), which can highlight that putting another $1 into the business (or keeping it in the business), or adding debt at an interest rate of X%, to deliver $X of net profit, might not be worth it for the risk being taken.

Sometimes the horrifying discovery is that the ROE percentage isn't above what could be earned if the money was simply invested in a bank account, risk free.

In the case of CEOs, ideally the board they report to has set (or agreed with CEO input/advice) reasonable financial targets that if achieved, meet the expectations of the stakeholders who are funding the existence of the enterprise.

Those funding stakeholders are any who provide the financial capital to fund operations - both debt and equity - the priorities of whom often differ.

What's the cost?

Using the revenue example above, it isn't as simple as more revenue leading to more profit given you almost certainly need to increase costs to deliver the additional revenue.

But that's not the most important point.

Many of the potential traps lay in the darkness of risk, and costs that are less tangible, or indirect.

In the revenue example, how will the growth targets be received by the employee base and how does that align to the culture?

Probably not well unless there's a sharing of the (possible) upside across the whole business, with assurances that the (possible) downside if targets aren't met won't mean loss of jobs or lower wages and conditions.

What happens if morale drops, even five per cent, or a key staff member finds a more aligned opportunity elsewhere?

If the growth relies on addition of new or expanded products or services, there's obvious execution risk, but what about possible loss of focus on the existing business?

For the personal financial growth focus, what's the emotional cost of an investment portfolio funded by someone else's money?

How does stress around money and work change when the total financial burden is increased?

What of your other life focuses could be impacted negatively as a result? Think prioritising health and fitness over an extra hour of work in the job you're now even more desperate not to lose.

So, get busy growing, but get it with clarity that it's aligned to what you are really trying to achieve, and that it's really worth the cost.