As an investor, you’re always looking for opportunities to spot a business early and invest as it grows over time. However, most investors don’t properly understand the concept of sustainable business growth.
It’s one thing for a business to experience rapid growth. It’s something else entirely for a business to grow at a sustainable pace. In the former situation, the pace of growth often leads to faulty decisions and long-term issues with the business model. In the latter scenario, the business has the time to develop a strong, stable infrastructure that supports additional weight in the months and years to come.
The Compelling Characteristics of Sustainable Growth
As an investor, you should be intrigued, yet wary when you see a business experiencing rapid growth. What you’re really looking for are businesses that are enjoying sustainable growth and making smart, calculated decisions along the way.
Specifically, you should be keeping an eye out for the following:
- Concrete Purpose
According to Fast Company, authentic purpose allows for consistent focus, strong emotional engagement with company stakeholders, and continuous, pragmatic innovation. If you’re going to invest in a company, you want to make sure there’s authentic purpose in the organization’s DNA. Otherwise, it’s easy for the train to go off the tracks.
- Consistency and Repeatability
One of the common misconceptions with business growth is that everything gets bigger and better as the company scales. However, the truth is that many aspects of the business actually need to get smaller. The bigger in size you get, the more important the details become.
“The hardest part about getting bigger is keeping smaller,” world-renowned hair stylist and entrepreneur . One expert states “You have to have a systematic approach to business. Take the variation out of what you do. Have repeating systems, so things are handled the same way at each location.”
Compromising consistency for the sake of growth is a recipe for disaster. What makes McDonald’s, Starbucks, Chick-fil-a, and other fast food restaurants so successful is that the food tastes the same regardless of whether you’re in Manhattan, New York or Manhattan, Kansas. Whether a company is in the food business or software industry, it needs established and repeatable processes in place in order to continue growing at a sustainable pace.
- Willingness to Face Risk
“To sustain growth, you must have the mindset of embracing risk as your best friend,” entrepreneur and author says. “The moment that employees are not encouraged to share their ideas and ideals, it becomes difficult to take ownership of the needs of the business – and the marketplace quickly begins to pass you by.”
Risk is not a bad thing. The most successful businesses in the world take big risks at critical times – but rarely are they foolish risks. In almost every situation, these risks are calculated and well timed. If you find a business that understands the proper way to handle risk, this is a good sign of sustainable growth.
- The “It” Factor
Sometimes a business just has “it.” You can’t put your finger on it, but there’s something about the brand, the leadership, and the timing that tells you a company is the real deal. And for all of the objective metrics you can use to spot a good company, it’s often a gut feeling that pushes you over the edge and encourages you to invest.
Early in your investing career, you’ll need some pretty big checks and balances to ensure your gut feeling isn’t the result of heightened emotions, market pressures, or a fear of missing out. As you gain more experience, you’ll learn the difference between a “sexy” company and one that has the “it” factor.
Tap Into the "Why"
As an investor, you really want to know the “why” behind a company’s growth. Do they have a plan that extends three, five, and ten years down the road? Or are they pursuing growth for the sake of growth? You might make a few bucks by investing in a flash in the pan, but you’re also exposing your portfolio to significant risk. It’s far better to seek out sustainable growth and put your money in companies that have the big picture in mind.