Should You Focus On Growth or Profit?

Hi everybody.

Today I wanted to record a quick video of why it's important to make profit first and then grow. So there's a lot of businesses out there, especially ones that are taking a lot of private equity investment that you might have seen that actually just focus on growth and headcount. And a lot of that's to do with maybe ego or vanity or thinking that higher revenue and higher headcount automatically means success in your business. I don't believe that's the case. So for me, in my business, we've grew organically with no funding from day one. We're into year five of the business now and what I noticed was I got caught up in the stigma of meaning more headcount and more staff automatically breeds that you are successful. And what I've noticed now is trimming down the fat in terms of the operational expenses because as you grow, you take on more staff, take on more expenses, more overhead, and then that squeezes your profit. And as an entrepreneur, I got into business for, yes, creating generational wealth for me, my family, longer term, but also for the freedom and the lifestyle that that business gives me and also my employees as well. So I think the idea of profit first is how I grow and I continue to grow my business. Ronald James as opposed to always just plowing back in the profit, you see these other companies plough their profits back into the business to grow, grow, grow, with one day going to hopefully sell and exit the business. So particularly recruitment businesses, the tradition, very hard to sell. You see a lot of companies, and I know a lot of business owners have maybe owned their business for 5, 10, 15 years. They still haven't managed to sell a business and they're still stuck in doing it, doing it, doing it every day. So I've went into the mindset of our business in terms of making good profit, sharing that profit with the team, but also just growing at the right time, so employing the right type of people once we have made profit. So a lot of companies want to be the next Google, Facebook, Twitter. I think I was reading somewhere around Twitter, for instance, after 10 years in business, they still haven't made a profit. So I think Twitter lost $2 billion since 2011 and he's yet to figure out how to, to make profit. So yes, those businesses are unicorns and their valuation is based on user interaction, the data that that possesses and then maybe turn that into advertising. But in terms of when you grow in a smaller business from start looking after your cash is so important because I went through a journey where our second, our third year in business, sorry, we actually made more profit in year three than we did in year four. Because. Because that's. Because we took on bigger office space, we did a lot of refurbishment which is, which is obviously as expected, but we took a lot of headcount on and we took a lot of overheads and costs and overheads walk on two legs, as Felix Dennis says, and as bukow to get rich. And that's really, really true because you think, oh, we've made another hundred thousand pounds this month, we can afford to take on another four or five people, but it's not necessarily the case. So when profit comes first, your business will automatically show the path to growth. And that's our motto of what we're doing here at Ronald James is making sure that we are growing at the right pace. Not just because I'm seeing other businesses grow a lot quicker. That doesn't necessarily mean that they're successful. I think I read a start that 95% of businesses don't pass that million dollar revenue mark. We're very lucky that we've done that. So I think we've done an outstanding job over the last four years being able to even achieve that. So we're one of the 5% that actually does that. And then from that 5, 5% that survived that to take it to $5 million, only 5% of those 5% actually get there. So a lot of people are surrounded by all of these success stories on YouTube and LinkedIn and the social media aspects that all of these big successful companies, but they don't show you the ones that are actually in the trenches that are struggling. And that's because sometimes people grow too quick. And I made that mistake probably summer last year where we maybe took on a little bit too many heads when we didn't have the infrastructure in terms of onboarding them correctly, giving them the right type of progression. And we're actually feeling out of how we were transitioning from recruitment business into a marketing stroke recruitment company. And that's had a lot of challenges, but now we're at such a great pace where we're set on our vision, we're set on the strategy that we want to achieve and we're actually earning great profit in the business as well, which is very, very important. So I just thought I'd mention the fact that just because you're growing and you're hiring more headcount or revenue, it is all vanity. It is down to, well, how much profit does your business actually generate? Because unless You're a tech company or maybe a SaaS company where you're trying to generate users and you lose money maybe the first three or four years. In business, cash is so important because if you haven't got cash to pay employees and expenses, then you're out of business. So look after that money and make sure every business that you win, every client that you work with is profitable. So another thing that I've done in my business for this year is looking down in terms of our client base, who do we want to work with and represent and give bigger value to moving forward? Because you can't always give a Great service to 75, 100 clients. You want to sort of trim that down and get a higher yield and revenue from them, giving them awesome value, but also making sure that are we making profit from that client? Because if they're not making profit, what's the point in being in business? We're not a charity. At the end of the day, we need to create profit and I think a lot of companies mistake that to being attracted by working with a great client and think that the profit will come later down the line. There's only so much you can do to invest in that time with the client without actually generating the right amount of profit. So tip on how you can increase profit. So to increase profit in your business, you need to become more efficient. So looking at your overheads, expense, so to deliver the same or better results at lower cost. So that's what I'm trying to base our business on in 2020 is how can we give even better results to our clients whilst reducing our cost and overhead. So what I'm starting to do now is look at the operational expenses by seeing if I can cut that, trim the fat by 10% this year because there's loads of like little pieces of software, cool tools, little things that, like, as a business, when you get more cash in the bank and we've been lucky to build a wall chest, but when you look at it in just one bank account, you think, oh, we've got enough money to take on these employees, we've got enough money to do this trip, we've got enough money to do that, but it all trims away. So it's been really frugal in terms of what type of expenses the business does need to generate the value and the service for the client. So making sure the client delivery side doesn't suffer and to increase the profit margins as well. Because most businesses, especially service businesses, should be facing their profit margins on around 30 to 35% on average. We want to try and push that threshold, hopefully to 40, 45%. And yes, growth does have an impact on that, but it should be steady growth, not massive trajectory growth where you're taking on too much headcount straight away. Because that's how a lot of businesses fail. So I hope you found this video useful. If you would like to leave a comment, share your journey as a business owner, what you do in your business tell, make profit and if you like and subscribe to the channel on YouTube, I'm going to be doing a lot more of these videos over the coming weeks and months and sharing our journey on growing an agency past seven figures. So hope you enjoyed it and I'll catch you soon.

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