When Revenue Growth Stalls: Causes, and the Signs to Watch Out For
When you start a company and see it enter the growth phase, it is important to watch the right metrics so that even if it becomes a large corporation, it doesn’t hit a wall in its growth trajectory. Many metrics can be of help in ensuring the growth momentum is maintained, but the most crucial one is revenue growth because the numbers in this metric are least susceptible to being interpreted differently.
But why do many companies stall in their revenue growth and never recover if this is allowed to go on for several years without being corrected? We look at some of the main causes of a stall in revenue growth. Company owners and executives would be well advised to keep their eyes peeled so that they avoid these factors from taking root at their companies.
Revenue Growth Stall Cause #1: Being Captive to Your Premium Position
Many companies work their way up the industry and are rewarded by occupying the pole position in their chosen niches. For some, this can turn out to be a curse, because they then become captive to their success.
Occupying a premium position in an industry can give a false sense of security, because you may fail to detect or even respond appropriately to smaller competitors that are chipping away at your dominance through their innovative products and services that appeal to a currently small section of the market.
Industry leaders may also be slow in detecting and making the changes necessary when a small section of their core market exhibits a shift in their preferences with regard to the features of a given product and service.
The ‘hubris’ that comes from being an industry leader for so long therefore paves the way for a revenue growth stall which can ultimately result in the company going belly up over time if corrective measures aren’t taken quickly and decisively.
Revenue Growth Stall Cause #2: A Breakdown in Innovation Management
Companies rise to the top on the basis of bringing products and services that satisfactorily or even exceptionally address the real needs of consumers. The problem is, consumer needs keep changing, and companies must have feelers out to detect these changes and respond to them in a timely manner so that revenue keeps growing and market share isn’t ceded to rivals.
Some industry leaders fail in this regard and don’t innovate appropriately to keep their revenue growth curve healthy. For example, some may choose to focus on making only incremental changes to their existing products while ignoring efforts to come up with disruptive products that address market needs.
Innovation management also influences whether a company pays attention to developing low-cost varieties of their premium products or they choose to keep upgrading their top-of-the-line products.
The strategy and practice of innovation management may prevent or bring on a revenue growth stall, and if the deficiencies aren’t correctly soon enough, the stall could trigger a long period of decline that results in the company being acquired, going bankrupt or altogether closing shop.
Revenue Growth Stall Cause #3: Abandoning Core Business Segments Too Soon
Many companies experience a revenue growth stall when they abandon a core business prematurely. The often mistaken reasoning behind pulling the plug on a core business is that the segment is now saturated and that growth has to be sought by looking elsewhere.
This premature exit from a core business denies the company a chance to fully exploit the growth opportunities inherent within the business segment, hence a revenue growth stall can come as a natural consequence of leaving low-hanging fruit while battling to establish oneself in a new market.
For example, a maker of premium denims like Levi Strauss can go into a revenue growth stall when they see the sales of their premium jeans plateau and they fail to realize that there is an emerging market at the lower end of the consumer continuum.
Revenue Growth Stall Cause #4: Shortfalls in Leadership
A company can also see a stall in its revenue growth if there are shortfalls in its top leadership. This shouldn’t be confused with the current talent shortage; rather, it is about the management team lacking the key capabilities needed to maintain revenue growth.
Sustained revenue growth requires a management team that can ably translate company strategy and goals into concrete actions to keep the company on a growth trajectory. This gets harder as the company grows larger, and that is when management capabilities are really put to the test.
Issues often arise when companies choose to hire top executives from within. Not that these executives aren’t good enough, but they often rise through the ranks and therefore only have experience working in that corporation, which makes them ill-equipped to respond to many challenges, such as external innovations that are eroding the company’s market share. The management style of internal hires is also deeply rooted in the way things have always been done at the company, so when challenges emerge that require out-of-the-box thinking, they are caught flatfooted.
Another factor to consider here is that industry leaders are often large companies with diverse divisions handling the different product lines of those companies. Efforts must be taken to balance the top leadership so that it reflects this diversity within the company, otherwise a growth stall can result when the top management is skewed towards one or a few divisions. The input of the other divisions is important for a balanced way of making decisions and running the company.
Signs that a Revenue Growth Stall May Be Imminent
• Not having written assumptions detailing the company’s view of its core market and which capabilities are vital to implementing company strategy in order to better serve the market.
• Taking several years without reassessing the company’s definition of its market boundaries together with the existing as well as emerging competition.
• Core customers are becoming increasingly reluctant to pay a premium for the products or services that the company offers.
• Competitors are exhibiting a greater adeptness in translating insights from customers into new products and services.
Rising to the top of your industry is the easy part. Staying at the top takes real work, because you have to constantly be on the lookout for issues like a stall in your revenue growth. The causes of these stalls discussed above are listed in no particular order, but they account for more than half of the reasons why companies experience growth stalls. Analyze your company and see which of them are evident there, and look at the telltale signs suggesting that a growth stall may be lurking even if your current numbers seem outstanding. Make the necessary changes, including hiring executives from outside the company, because the stakes are high and your company’s future depends on the steps you take. It is lonely at the top, but the rewards are worth it!