Business, like many things in life, have natural “water levels”, or plateaus, revenue tiers that they seem to achieve consistently as they reach levels of maturity. I’ve found these strata to be fairly natural - $1m, $2.5m, $5m, $10m, $25m, etc. Every company will eventually find their “water level”, often after a period of solid growth that suddenly plateaus.
Even when you see it coming it can be a difficult pill to swallow when you wake up one day to the realization that your revenue has plateaued, even when you see it coming. The two most obvious questions are:
- Why did it happen?
- What can we do about it?
Obviously, the answer to the second question depends largely upon the answer to the first, which we’ll attempt to frame in the sections that follow.
There is no such thing as straight-line revenue growth. Regardless of the averages over periods of time, growth trajectories always comprise a series of peaks and valleys…growth spurts and slow-downs. The trick is to recognize when the averages start to slow and to undertake steps to understand what is limiting continued growth. We’ve found that there are several factors that are typically responsible for “plateauing”:
Market Limiters – especially for small businesses, there are limitations to the number of customers available to them (Total Available Market). An easy example to understand is the local pizza shop. No matter how good their pizza is, there are only so many people willing to travel so far, so often to buy their pizza. This is an example of a “market limitation”.
Economic Limiters – economic limiters can take several forms. The overall economy can stagnate, as is happening presently in 2023, which in this case is accompanied by inflation. In 2008, the recession was accompanied by high unemployment. Depending upon the nature of a particular economic downturn, you can have fewer people with money, people with less money to spend, or both. This applies to both consumers and businesses as they are inexorably tied in any economy.
Capacity Limiters – in some cases a company simply does not have the capacity to deliver products and services at a higher revenue tier. This could be due to internal capacity limitations, supply chain limitations, labor availability, etc.
Capability Limiters – in other cases it is a case of capability (not to be confused with capacity). A company’s equipment may only be able to produce a certain level or type of product, limiting the options a company has for expanding it’s product or service offerings. The skillsets represented in the available labor pool can also limit a company’s capabilities.
Even armed with the most compelling data related to the factors limiting the growth of your company, there are still no simple answers…but some are better than others…and all come with some level of risk. In some cases the best choice may be to do nothing, to accept your fate as operating at your water level and to find a way to generate the best cash flow at that level. However, should you choose to charge forward, there are a number of options to consider.
Product / Service Offerings – in some cases it can be a simple as expanding product / service lines. Using the aforementioned pizza shop as an option, they can add wings, desserts, etc., giving people more options as a way to increase frequency of purchase or average purchase value.
Geographic Expansion – depending upon the nature of a given business, expanding geography can lead to revenue growth. For a consumer business this is as simple as adding locations (not that that is a simple process). For other businesses it may be a matter of adding sales resources targeting new regions. It’s important to understand that this may also involve product line modifications to ensure that you are competitive in those new markets.
Pricing Strategy – having the right product at the right price in the right place at the right time is always crucial for success at any level of business. When economic challenges limit customers’ ability to purchase it may require price adjustments or incentives to just retain existing business. In other times it may represent an opportunity to gain market share from a competitor.
Marketing Initiatives – especially when things are challenging it is important to “put your foot on the gas”. When everyone else is “hunkering down” to conserve cash you have an opportunity to gain market share. “Out of sight”, out of mind is a killer for any brand, but again, an opportunity to win their customers.
Internal Expansion – working to add the right human and physical resources is also crucial to growth. You have to have the capacity to sell it and the capacity to deliver it. This requires careful consideration to ensure that the available revenue can be achieved to justify these increased expenditures.
Unfortunately, there are no simple answers, but there are solid processes to help you get to the next level. It takes a combination of thoughtful and objective analysis, creative problem solving, and a willingness to make changes and take risks.