Why Is Top Line Growth So Important?

A little over a year ago, I wrote this message so we would all have a clear understanding as to why I emphasize profitable growth so much. While the message is essentially the same, I have made some enhancements to better show how growth or lack thereof, applies directly to you- our employees.

So why is top line growth so important? I have been asked this question numerous times over the past couple of months, which leads me to believe this question is on the minds of many of us here at Supplemental Health Care. The follow up question usually is, “Isn’t net income more important than top-line growth? After all I am making more money for the company.” Fair question-fair statement. Let me see if I can take a minute to provide some clarity.

I’ll start with a quote from a respected entrepreneur and innovator:

”Growth is the oxygen of your business. Without it your organization withers.”
Thomas Steinberg, Founder of Staples, Inc.

And next, from the movie, Tommy Boy:

”You’re either growing or your dying.”
Tom Calahan, Sr. from the movie “Tommy Boy”

I agree with both Mr. Steinberg and Tommy Boy’s dad. I would like each of you to take a minute and look at those two quotes not only from a company perspective, but your personal situation as well. When discussing top-line revenue growth vs. bottom line net income, the answer is not an either/or it’s more a case of a both/and. Typically, as explained in the book “Double Digit Growth” by Michael Treacy, there are two types of cycles that companies go through.

First there is the Virtuous cycle. The Virtuous cycle is the time frame where the company is growing at a fast rate. In this cycle, there are three key drivers for maintaining vigorous top line growth.

First, there are economic reasons for top line growth. Fast, profitable growth typically leads to higher earnings and a higher company value from an investor perspective. A higher valued company can then borrow money at a less expensive rate. More capital at a lower interest rate provides more investment. More investment drives additional growth. But the need for high growth is not limited to economic reasons.

Another reason for top line growth is the momentum factor. The fact is that both clients and talent want to be with winners. Faster growth gets the attention of various stakeholders essential for our success, including health care professionals, clients, prospects and prospective employees. This momentum boosts confidence in Supplemental Health Care and enhances the company’s reputation, as well as improving the company’s value. Client/talent confidence in turn drives higher growth rates.

The third reason we look for top line growth is the opportunity factor. High growth leads to new opportunities for our employees, which leads to higher morale. Higher morale leads to more innovation and higher productivity, which fuels client/talent value. A better, more innovative value proposition drives faster growth. These are the reasons why profitable growth is so important.

In contrast, the polar opposite of the Virtuous cycle would be the Vicious cycle.

First, the economic drivers of the Vicious Cycle: Because everything starts with the top line, slower growth and/or sales declines lead to less net income. Less net income leads to a lower company value. Lower company value leads to a higher cost to borrow money (interest rate) to invest. Higher capital costs result in less investment. Less investment drives less growth.

In the momentum factor of the vicious cycle, poor financial performance gets the attention of customers-both current and prospective. Just as we all want to be with a winner, nobody wants to be associated with a loser. The poor financial performance hurts the company’s reputation with both clients and talent. Lack of confidence in turn drives higher defection to the competitors. Higher defection accelerates declining revenue.

Finally, the opportunity factor side of the vicious cycle. Since there is a lack of growth downsizing may occur. Downsizing usually leads to lower morale and a lack of trust. Lack of trust leads to less innovation by employees and lower productivity, and also fuels defection of key employees. Loss of key employees creates doubt in other employees, causing them to leave for greener pastures. The resultant high turnover leads to degradation of service and the loss of more clients and talent. And so it goes with the vicious cycle. I know that some of you have been exposed to the vicious cycle at prior companies. It is not a pretty environment. Vicious cycles are like comfortable beds; easy to get into and difficult to get out of.

Take a hard look at your office. Take a hard look at your personal book of business. Do you see yourself as a giraffe, head and shoulders above the rest, or an ostrich sticking its head in the sand with “hope” as your strategy?

Supplemental Health Care is currently in a slowing virtuous cycle of industry leading growth. As a company, however, we have leveled off a bit over the past couple of months and must reenergize. We must climb back over the 25% year over year profitable growth.

What will it take to do this? The short answer is everything we’ve got, every single day. We need to treat every single client/talent touch point as a moment of truth and make it a great experience. It doesn’t matter whether you are a corporate employee (with internal customers - the field) or a field employee dealing with corporate employees, clients and talent. We must use all the skills we learned as part of The Supplemental Way training and practice our core values of Integrity, Candor, Accountability, Respect and Excellence---I. C.A.R.E.

I look forward to our continued success. Let’s keep the Virtuous Cycle going!

Thanks for reading.

Sincerely,
Mike Jacoutot
President and CEO
Supplemental Health Care
http://www.supplementalhealthcare.com

1.678.443.9482