There is but one absolute key to growing an enduringly successful business: continuous investment.
Investment should be in new and improved products, new and improved marketing programs, new technologies, new and improved processes, new and improved methodologies, enhanced skill sets and competencies.
Inherent in investment is sacrifice. When one invests, one delays gratification and forgoes the enjoyment or use of something — typically dollars — in exchange for potentially higher rewards in the future.
When you started your business, what did you do? You sacrificed. You went without a paycheck for a few years. You took risk. You worked day and night in hopes of a future return. In short, you invested.
Similarly, think about the time in which your business enjoyed breakthrough growth. No doubt, it followed a period of innovation, sacrifice and investment.
So the question is, are you still investing?
Are you still sacrificing?
I see a LOT of businesses in which all of the income is taken out each year. That is, little is invested toward future growth. The owners take all the profit out to support their “lifestyle.”
This is OK. There’s nothing wrong or immoral about it. My only suggestion is that the business owner(s) be cognizant of the trade-off they are making. They are making a choice, and the choice they are making will result in the slow and steady erosion of the business.
Too harsh? I don’t think so.
If a business’ products and services are not improving, they’ll fall behind to those who ARE investing and innovating. Ditto for marketing methods, sales methods, operating efficiencies, etc.
Look, Microsoft has one of the most dominant products of all time, right? If it were run like many a private company I see, it’d be harvesting lots and investing little. But that’s not the case. Microsoft is run by people who are committed to making sure Microsoft is the leader in 10, 25 and 50 years just as it is today. And so Microsoft continues to invest heavily. In 2008 alone, Microsoft invested $19.4 billion in research and development, property, equipment and the purchase of other companies. That’s 32 percent of Microsoft’s 2008 revenue and 1.1 times its net income! It invested more in 2008 than it earned in the entire year!!
How about Intel? In 2008, Intel invested $11.1 billion in research and development, property, equipment and the purchase of other companies. That’s nearly 29 percent of Intel’s 2008 revenue and twice its net income!
Caterpillar? Invested $5.8 billion in 2008, or 11 percent of total revenue and 1.6 times its net income.
Nike? Something on the order of $1.2 billion invested in 2008 in research and development, property and equipment and the acquisition of companies. That’s 7 percent of 2008 revenue and 65 percent of 2008 net profit.
These companies have been on top for a while. They got there by investing heavily. They’ll likely stay there — given their levels of investment.
Are you really committed to enduring growth and success? Are you continuously investing a large portion of your profits?
This article originally appeared in The Business Owner Journal, the periodical of choice for owners of small and midsize private businesses. All rights reserved, D.L. Perkins LLC. © 2012.
This publication is intended to provide general information on the subject matters covered. It is sold and distributed with the understanding that neither the publisher nor any distributor or advertiser is engaged in providing legal, tax, insurance, investment or other professional advice. The advice of a qualified professional should be sought before any reader applies a concept presented herein to his or her particular situation or business.
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