Company growth in any capacity is something to be proud of, but it’s important to avoid the common mistake of only focusing on current growth strategies. While these will increase your revenue now, they might not be sustainable. Fostering organic, long term growth is crucial to your overall success and will keep your company relevant and thriving. In order to fully understand why both are important, though, you first must understand the differences between them.
By a simple definition, short-term growth is an increase in the output of a company in terms of GDP (Gross Domestic Product) over a short period of time, such as one year. GDP represents the total monetary value of all goods and services that are produced and sold within the company during that period of time. For example, if you run a coffee shop and require each barista to make at least 10 drinks per hour, but then bump the requirement up to 15 drinks per hour, you are achieving short-term growth because your company is producing more goods than before without any change in the production process.
On the contrary, long term growth is essentially an expansion in either the quality or quantity of factor inputs, or in other words, an increase in the company’s production potential. Since the company is able to produce more goods or services, the potential GDP rises. Continuing with the coffee shop example, this would mean you are increasing production ability by purchasing additional coffee machines or hiring more baristas. Doing so would achieve long term growth because your company has then improved its production capabilities and been positioned for increased revenue in the future.
According to an article posted by MindBox, understanding the difference between what it means to grow your profits and what it means to grow your profit margins is a game-changer. The author, Jesse Williams, explains, “Your total available market, or TAM, restrains the size of your profits. Once you’ve reached your maximum TAM, the only place to look for growth is your profit margins.” Short-term growth is fairly easy to achieve because it simply consists of making a profit and maximizing that profit as much as possible. Long term growth, however, requires contemplation of future goals and what resources are needed to achieve them.
While it can seem difficult to focus on both short- and long-term growth at the same time, doing so is critical to ensuring that you are able to make a profit now, but also that you can continue to make a profit in the future. It’s tempting to sacrifice future growth for short-term gains, especially when money is tight and tensions are high, but this is one of the easiest ways to find yourself in even more significant trouble down the line. If you find yourself struggling to lend time to long-term growth practices, try writing down your goals and posting them near your desk or setting aside time to focus solely on your future projections and what is needed to get there. Work on attaining a mindset that sees short- and long-term growth as equally important.
To wrap up, short-term and long-term growth can be explained as increase of profit and increase of profit margins. Both are imperative to any company’s success, but it’s easy for the significance of long-term growth to be forgotten in favor of current company issues and ideas. Avoid making the mistake of abandoning balance in search of instant profit by writing down your company goals and setting aside time to focus specifically on long-term ideas and what is required to turn them into a reality. It may seem like an insignificant commitment, but you will thank yourself later.