While meeting with a client the other day the conversation turned to their growth plans. The client softly explained that their growth plans were pretty conservative considering the economy and how much their board of directors enjoyed their dividend checks. We both chuckled knowing that growth needs to be funded by profit and would cut into the dividends. He went on to describe a careful growth plan that would ensure their long-term profitability. Then he chuckled about a national competitor trying to buy their way into the market plowing massive funding into growth efforts and suffering mightily. We both shook our heads.
Later that same day I met with a development team from a community benefit organization (nonprofit organization). They nervously explained that their fundraising efforts needed to quickly produce some pretty aggressive results to fund their latest expansion. I turned the conversation to their sustainability plans and they chuckled. Given their current growth they couldn’t possibly consider funding their endowment. So, I went a step further and asked about their marketing budget for fundraising. Again they chuckled. Nearly everything they had was directed at growth — and they were suffering mightily. We all shook our heads.
In all businesses growth and profit are in constant tension with one another. It doesn’t matter whether the business is a for-profit or nonprofit. Just as the laws of physics affect everything on earth, the laws of profit and loss affect every organization. Growth creates losses. It is not continually sustainable. Without profit, or in the case of a community benefit organization residual income, there is no sustainability. Without sustainability there is no tomorrow.
Profit and growth are two levers — if you push one you have to pull the other one. They have to be carefully negotiated back and forth to generate the power to sustain. Push either one for too long and everything stops.
Do you have your levers under control?
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