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Growth vs Profitability vs Sustainability: Strategies a Company Can Use

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  Reading time 10 minutes

A recession is a period of economic decline characterised by high unemployment and a downward trend in business profitability. This phenomenon makes it difficult for businesses to make money and even more difficult for investors to invest — but there are ways for companies to make the most out of the situation.

But before we tackle these points, let us first talk about these two words: growth and profitability.

Growth vs Profitability?

While either starting or managing a business, founders would have faced the difficult decision of what to prioritise: expanding the company to grow it or keeping things as is and pushing for sales to generate higher profits.

But if one would give it more thought, why does a company have to choose one over the other when both walk hand-in-hand in making a company successful? When a company invests in itself like when it hires more personnel or develops new tech, it starts to grow and expand. And when a company has more to give, it widens its market, which generates more customers — and when there are more customers, there is more money.

So why are there growth vs. profitability discussions in the first place? Well, it is because there are many companies, both new and old, who jump the gun too fast when they’ve hit their peak. To cite an example, let’s look at the story of the BlackBerry brand.

BlackBerry: A Cautionary Tale About Complacency

BlackBerry was once the top smartphone developer in the late 2000s. Their sleek yet super functional phones with the trademark QWERTY keyboards took the world by storm with over 80 million users. It was the must-have phone for anyone who wanted to be someone. It was also the choice phone for many business professionals because of its BlackBerry Messenger feature, which allows for seamless communications for both business and personal purposes.

But when Apple introduced their touchscreen smartphones, BlackBerry ignored the potential of touchscreen-based technology because they were comfortable sitting at the top — this mindset led to their demise. When the market shifted to touchscreen smartphones, people started to shift to other brands like Apple since BlackBerry did not have its touchscreen phones. It was already too late when the company decided to release its touchscreen phone called the BlackBerry Storm because people were already used to using other brands. It also did not help that the Storm had many issues.

Sustainability Should Be the Main Priority

The issue here isn’t choosing growth over profitability and vice versa anymore. BlackBerry had profitable growth way back in the 2000s. BlackBerry hit an all-time high of 147.55 in its stocks in June 2008. The issue here is the lack, or absence, of sustainability in business plans.

If you plan without considering whether that plan is sustainable or not, your company, regardless of how well it is doing financially or how fast its growth is, will not last long — especially when there is an economic recession.

In 2020, the COVID-19 pandemic forced most of the world under lockdown to help prevent it from spreading. Because of this lockdown, many businesses that were deemed non-essential had to close temporarily. In Singapore, the parliament passed the COVID (Temporary Measures) Act which allowed the Ministry of Trade and Industry (MTI) to make regulations “for the purpose of preventing, protecting against, delaying or otherwise controlling the incidence or transmission of COVID-19 in Singapore.” One of the measures restricted non-essential businesses from operating.

After a year or so, the lockdowns eased up, allowing a few non-essential businesses to operate at limited capacity. Even when non-essential companies could open their doors to people, the restriction plus the low number of people travelling in the cities had a huge impact. Senior Minister of State for Trade and Industry Chee Hong Tat shared in 2020 that about 3,800 companies had to close down in April of 2020 due to the severe strain of the pandemic on the country’s economy. How about those businesses that survived the economic strain from the pandemic?

Strategies A Company Can Use in an Economic Downturn

A downturn can affect business profitability. Here’s what thriving companies did in order to power through an economic downturn:

      1. They assessed their business. Thriving companies evaluate the current state of the company during a potential recession. They check for elements that could be detrimental to the company and solve them before they become more problematic. Doing this saves them from being blindsided by potential issues that could hurt the company even more.

        Checking the company’s general ledger is a good first step as general ledgers record the comings and goings of the company’s finances. You can review our article on general ledgers and why companies should need one if you want to learn more.

      2. Retain instead of replacing. Companies that do well during a recession try to retain their current employees as much as possible instead of hiring new ones. Retention can help because your company would not need to expend additional resources just for the hiring process and training. It also helps keep the morale of your employees higher as it makes them feel that they matter to the company and, in turn, makes them more productive.

      3. Consider outsourcing. So you’re planning to retain all your staff, but what if you need more? Most companies during a downturn would have assigned more tasks than usual to employees to keep things running smoothly, but there are instances where these additional tasks could lead to burnout — and eventually push employees to resign. It is actually good advice to outsource tasks.

        By outsourcing, you are able to lighten the workload of your employees without sacrificing your company’s workflow. Outsourcing may also be a way for you to fill empty positions in the company so that you wouldn’t have to spend time and resources just to find the right fit in the midst of all the chaos.

        Related Reference: How outsourcing can mitigate the effects of sudden resignations.

      4. They explored new avenues. Another notable strategy thriving companies use is that they explore untapped avenues to increase business profitability — even during hard times. During the COVID-19 pandemic, many businesses transitioned to e-commerce to continue delivering products and services to clients without having them appear physically at a brick-and-mortar location to get them.

        According to a study conducted by the United Nations Conference on Trade and Development (UNCTAD), the e-commerce market’s share of global retail trade increased from 14% in 2019 to about 17% in 2020. We wrote a more detailed article on how small businesses survived the pandemic here if you want to learn more about it.

        While the competition is recovering or trying to cut their losses during the pandemic, others took the offensive to try and capture the competition’s clientele. So, when the market recovers, these companies would already have a solid foothold in the market.

      5. Consistent marketing. Whether it is by word of mouth or through the use of social media, consistent marketing helps keep businesses relevant to new and existing clients. There are other businesses that offer similar products and services. Some could even offer lower prices than other businesses. But why are certain businesses still being flocked to even if there are others out there? It is because these businesses are the ones people remember the most.

    Being growth-minded is good; Aiming for profitable growth is also good — but if you don’t include sustainability in your business plans, your company and brand won’t last when an economic downturn occurs. As to when a downturn would happen, we can never really know until it happens. So, while you still have the time, money, and resources, plan!

    True business profitability starts with a solid company foundation. If ever you need help with streamlining your company’s workflow or would need to outsource backend tasks like corporate secretary tasks, accounting, and payroll, we at Lanturn are more than happy to help you out! 

    Contact our team today to learn more!

     
    Lanturn Content Team

    Lanturn Content Team

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