22 Jul 2020, 14:09 — 7 min read
The purpose of a business is to be profitable. This statement is profound and true, however when we look at the statement through the lens of perception the organisation has in the society, impact on the world, ethics, ability to contribute, create inorganic growth, contribute to the national economy, strengthening the sector it operates, introduce innovative services or products which make consumer life simple and effective, creating world class talent, we are opening many more opportunities to the qualification of the statement.
The paradigms of business at all levels have changed over the past few decades. Mid sized companies have successfully transitioned to valuable organisations by keeping the balance of profitability and creating value. Some of the factors to be constantly be evaluated by businesses to ensure a healthy balance between profitability and value are as follows:
A high bottom line orientation in organisations compresses the opportunity to build scalable business. To be valuable it is important to operate and experience variety of categories and types of consumers. Businesses will burn cash in order to attempt scalability. A profit making mindset will resist that approach. Businesses will need to balance bottom line orientation to scale of operation. Scalable businesses have higher propensity to be valuable.
The paradigms of business at all levels have changed over the past few decades. Mid sized companies have successfully transitioned to valuable organisations by keeping the balance of profitability and creating value.
One location, more control of operation may be a good and comfortable way to grow. Without expansion it will be a success in one location, market. Business owners who have consolidation as their focus would want to operate from one location as that would make them more profitable. However by expanding the horizon in more locations and diversifying in different related businesses may give the opportunity to be valuable.
Business owners who choose to take lower risks are happy with flat growth and normal profits. It serves the cause of doing business. The perspective is directly related to input / output as in time spent versus money at the end of the period. Sound logic no doubt, till the time the factors of the predictable profits are constant. Most of the time in a dynamic business environment it does not remain constant. Hence businesses which take more risks have the opportunity to create more value including profits for the business.
One of the big appetite to growth is inorganic growth. Tremendous value is generated in case organisations focus the growth on inorganic avenues . inorganic avenues of growth unlock the value in the organisations and take them to the next level including profitability. Inorganic growth creates lots of opportunity for the business to be of value through mergers, Joint Ventures etc.
“Let us pass today we will see how tomorrow shapes up”. Tactical and short term thinking may create money in the bank for some time, without a clear vision and strategy for growth and plan to back it up will not create a valuable organisation. Longer line of sight is imperative to build a valuable organisation. Business owners with vision will create valuable organisations.
Sow to reap, businesses which generate cash must invest in creating value by investing in agendas and activities which will create value for business in the long run. When other look at cutting costs valuable organisations look at optimisation. Investment in people, brand, technology, innovation, enterprise risk management etc. will create opportunity and avenue for creating a valuable organisation.
Attachment to the business is natural for someone who has created this “baby”, the business venture with his own hands but in order to create a valuable organisation more stakeholders will have to be created. It may dilute the promoter share of wallet but it will be foundation of a valuable organisation.
Organisations which are happy with flat or marginal growth must learn to blend in some appetite to innovate and bring higher growth. Innovation brings new opportunities for business growth. Innovation mindset is a very key starting point to become a valuable organisation.
Businesses which begin and end with the owner will only live to be profitable for a few people. We have seen in the past great businesses perishing due to the lack of succession planning. Valuable organisation will always work to create a good succession planning and create sustained business continuity.
Valuable organisations define themselves by being associated in common people, day to day life. For valuable organisations brand and responsibility towards people comes first. Being valuable means creating all inclusive growth agenda beyond the owner and its business and creating significant impact. Business owners must not depend on the size and the nature of the business to do this. This may be done at any stage.
Organisations have to learn to blend profitability and being valuable. just like bank balance is not liquidity in financial terms similarly profitability is not equal to being valuable. However most valuable companies end up being leaders and sustain the volatility of business turbulence over time. The choice for the future is not either profitable or valuable but valuable to be profitable.
Also read: A new paradigm for people and business
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Posted byDebashish Das
Leadership and Business Growth Coach with over 20 years of experience in coaching and consulting. Specialist in HR, Strategy, Business Growth for SME and Corporates. As a coach...
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