Net Revenue Growth… the lifeblood of a thriving business

In a conversation earlier today with a long-term friend and
colleague, we talked about the growth challenges of his business and the need
for growth over the next few years. 
While our focus was on the “net income” line of his company’s p&l, I
blurted out (as I am known to do) that “net revenue growth is the lifeblood of
a thriving business.”  Not only is that
true related to my friends company / industry, it happens to be deeply true in
EVERY business I have had the chance to work on over the past 30+ years!  Whether on Kleenex tissue, Breyers Ice Cream,
Coca-Cola, Bolthouse Farms or across the varied businesses that I am consulting
on today, the importance of healthy top-line growth has been a central and
common theme across my career.
This idea of the importance and power of “growth” spans
business and culture.  A great quote from
our history sums it up well: 
“Without continual growth
and progress, such words as improvement, achievement, and success have no
meaning. “

Benjamin Franklin

While Franklin was not talking specifically about today’s
corporate reality, this truth that there is no “success” or “achievement”
without “growth and progress” is deeply true from my experience and important
to remember.  If the ultimate indicator
of a business’s health is “demand” as I have written in a previous essay
(“Demand Drives Price”), then to have a thriving enterprise one needs to have a
thriving revenue line on your p&l.
While so simple to discuss and comment on, this dynamic is
no small feat across business realities. 
I have worked in businesses without a thriving topline and you end up
looking to cost reduction plans, “doing more with less” and organization
restructurings to achieve quarterly and annual profit targets.  While effective in the short run, a business
runs out of “cost centric” actions over time and ultimately does not thrive and
succeed without solid revenue growth.
On the opposite dimension, I have recently worked in a high
growth business environment, which also had its challenges.  In that situation, we have a tough time
“keeping up” with the growth opportunities and more importantly “fulfilling”
the growing demand of the business.  It
was an eye-opener a few years ago to realize that our business had “outgrown”
the actual number of warehouse doors of our primary production facility and
that during the peak demand weeks between Thanksgiving and Superbowl, we didn’t
have enough “doors” to handle all the trucks picking up customer’s orders.  Yes, our demand growth was strong but if we
couldn’t “handle” the growth, then it would have been nothing more that temporary
phenomenon!  (We did work our way to
“handle the growth”, fodder for a future essay!!)
This idea of finding the right balance between a no growth
environment (where you’re trying to “save your way to success”), and a high
growth environment (where you can’t keep-up with the demand that you have
created) is key to a business “thriving” over time.  Work hard to find that right balance year
after year but never lose sight of the “G” word.  It’s all about “growth” and in my experience
a healthy balanced growth of the revenue (demand) over time!
A quick comment on the use of the word “Net” in this essay’s
title:  Recently I have worked with a
number of consulting clients who are driving the heck out of their “Gross
Revenue” line of their p&l with very little translating to the “Net Revenue”
line.  They use discounts and allowances
(“D&A”) to drive short-term growth which is OK if it translates to “Net
Revenue Growth” over time.  I like to
focus on the “Net Revenue” line of a business’s p&l and track it as THE key
variable over time.