The 5 Dimensions of Growth

Growth is one of those words in business that appears to have an obvious meaning. Ask whether a company is growing and the instinct is usually to look at revenue. If turnover has moved from £2m to £4m, the business has grown. If it reaches £10m a few years later, it has grown substantially. We measure it, celebrate it and, particularly in entrepreneurial businesses, tend to treat it as evidence that most other things must be moving in the right direction as well.

Over the years, I've become increasingly uncomfortable with that assumption. I've seen businesses grow revenue while becoming less profitable, add customers while becoming dangerously dependent on a handful of them, and employ significantly more people while becoming more rather than less dependent on the founder. I've also seen businesses become substantially larger without becoming substantially more valuable.

None of that makes revenue unimportant. Without customers and revenue there isn't much of a business to discuss. The problem is that revenue is very visible, while many of the things required to support it are not. For a period of time, strong commercial momentum can disguise weaknesses elsewhere remarkably effectively.

Eventually it stops doing so.

This tends to happen somewhere beyond the early stages of a business, when the informal structures that helped it grow become increasingly difficult to sustain. The founder can no longer be involved in every decision. Customers become larger and more demanding. More people require more management. Cash becomes more important because relatively small movements in working capital suddenly represent significant amounts of money. What worked at £2m begins to look very different at £10m.

The business hasn't necessarily stopped growing. What has happened is that growth has exposed the parts of it that haven't grown.

Growth is rarely one-dimensional

This is what eventually led me to think about growth across five dimensions: Revenue Growth, Capability Growth, Market & Partner Growth, Financial Growth, and Culture & Leadership Growth. The names themselves aren't particularly complicated. The important part is the relationship between them.

Businesses rarely develop evenly. Revenue may accelerate long before the organisation has the people, systems and processes required to support it. A company can build excellent operational capability without developing enough new markets or routes to customers to make use of it. Strong commercial growth can consume cash rather than generate it. And a business can have almost everything required for the next stage while remaining constrained by a leadership structure that belongs to the previous one.

That imbalance is where many of the problems normally attributed simply to "scaling" begin.

Revenue is perhaps the clearest example. There is an enormous difference between £10m of predictable, diversified and profitable revenue and £10m generated through heroic effort, customer concentration and the founder personally closing every significant deal. On a revenue chart they may initially look much the same. To somebody considering investing in or acquiring the business, they can look completely different.

The same applies to capability. In the early years, good people compensate for poor processes remarkably well. Everyone knows what is happening because the organisation is small enough for information to travel informally. Problems are solved by the person who happens to know how to solve them, and the founder usually sits close enough to everything to intervene when required. None of this is necessarily bad. In fact, imposing too much structure too early can be every bit as damaging as having too little.

Scale changes the equation. Processes designed for ten people become unreliable with fifty. Systems designed around a £2m business begin to struggle with £10m. Decisions continue flowing through the founder long after it has become sensible for them to do so. Eventually adding more revenue creates more operational pressure than value, and what appears from the outside to be a commercial problem is actually a capability problem underneath.

This is also where leadership begins to change in ways founders sometimes underestimate. The skills required to create a business are not identical to those required to lead a larger organisation. Early on, speed and instinct are enormous advantages. Decisions can be made quickly because the founder has most of the information and carries most of the risk. As the organisation grows, leadership becomes increasingly about creating the conditions in which good decisions can happen without the founder being involved in all of them.

That transition can be uncomfortable. For years, being indispensable is often evidence that the founder is doing something right. Eventually, remaining indispensable can become one of the biggest constraints on the business.

The dimensions move at different speeds

Markets create a similar tension. Businesses understandably become attached to the things that made them successful, but the market position that produced the first phase of growth will not necessarily produce the next. The next £10m of revenue may come from a different customer segment, geography, channel, proposition or strategic relationship from the first.

I've seen this particularly often in technology and telecommunications, where the right partner or route to market can create reach that would take years and considerable capital to build directly. But partnerships introduce their own dependencies, just as customers do. A business with one dominant route to market can appear extremely successful while quietly becoming vulnerable to decisions made by somebody outside the organisation.

Financial growth adds another layer. Revenue and financial growth are frequently treated as though they are the same thing, but they can move in opposite directions for surprisingly long periods. Businesses can report record turnover while margins deteriorate and cash disappears. Growth can require investment, of course, and maximising short-term EBITDA is not always sensible. But at some point there needs to be a relationship between the capital being consumed and the value being created.

This becomes particularly apparent when external capital or an exit enters the conversation. Years of increasing turnover don't automatically translate into the enterprise value a founder expects. Investors and buyers begin looking beneath the headline numbers at margins, cash generation, working capital, quality of earnings, customer concentration and the predictability of future performance. What matters is no longer simply how large the business has become, but how good the economics of that growth actually are.

Culture and leadership are harder to measure, which perhaps explains why they can remain neglected for longer. Culture in a small founder-led business often develops naturally. People are close to the founder, communication is informal and everybody has a reasonably clear understanding of what matters. As the organisation expands, those informal mechanisms become less reliable. Accountability, communication and leadership have to become more deliberate.

I've encountered businesses where the commercial opportunity was obvious, the finances were sound and the operational capability existed, but the organisation still couldn't move faster than the person at the centre of it. It is a particularly difficult constraint because it rarely appears in a spreadsheet. Everybody inside the business tends to know it exists, nevertheless.

The imbalance is often the real constraint

Thinking about a business through these five dimensions changes the question I tend to ask. Rather than beginning with "How can this business grow faster?", I am more interested in understanding which part of the business is preventing the others from developing.

A company growing revenue at 40% while its operational capability barely changes will eventually experience the consequences somewhere. Another may have excellent people, products and customers but weak financial discipline, allowing apparently successful growth to create a cash crisis. A highly profitable business with a strong management team can still plateau because it hasn't developed another credible market or route to customers.

The weakest dimension matters, but I think the imbalance between them often matters more. Businesses are systems, and pressure tends to appear where one part of the system can no longer support what another is asking it to do.

This is also why I don't see the 5 Dimensions as five stages or a checklist to work through. There isn't a point at which Revenue Growth is completed and Capability Growth begins. They are moving simultaneously and, ideally, reinforcing one another. The objective isn't perfection in every dimension. Few businesses ever achieve that. It is to understand where the imbalance is becoming significant enough to constrain what happens next.

There is another reason I think this matters, and it connects with something I've written about before. Growth should ultimately create options.

A strong business can continue growing independently, raise capital from a position of strength, make acquisitions, bring in a strategic investor or sell if the right opportunity appears. It can also decide to do none of those things. The important thing is that the choice remains with the shareholders.

Poorly balanced growth can have precisely the opposite effect. Customer concentration, cash pressure, organisational fragility and founder dependency gradually narrow the available choices. The business becomes larger and may appear more successful from the outside, while its room to manoeuvre quietly reduces.

That was the tension behind What Growth Quietly Takes Away. The 5 Dimensions are, in many respects, the other side of the same argument. Growth does not inevitably reduce freedom or create fragility, but avoiding those outcomes requires the rest of the business to develop alongside the revenue.

So when I look at an established business today, I am interested in the growth rate, but it is rarely where I stop. I want to understand whether the revenue is predictable and profitable, whether the organisation can support the next stage, whether there are credible routes to future markets, whether growth is translating into stronger economics and enterprise value, and whether the leadership team can operate without everything continuing to flow through the founder.

Somewhere in the relationship between those things is usually the constraint that determines what happens next.

Perhaps that is the more useful definition of growth. Not simply making a business larger, but developing its ability to create value without progressively narrowing its own choices.

That is harder to put on a chart than revenue.

But over the long term, I think it is considerably more important.