This week marks the beginning of the 22nd year of my advertising career. Over the past 22 years I have worked for an agency owned by private equity, an agency owned by a public holding company, and an agency that was privately held. I have learned a lot along the way. In 2016 I launched my own ad agency called The Weaponry. And I’m trying to apply all I have learned to make this bird fly.
Private Equity Goals
When I worked for the advertising agency owned by private equity, its main focus was growing to sell. A funny thing happens when you want to grow to sell your company. Especially when your investment clock is ticking, and you want to sell within the next 24 months or less.
You become hyper-focussed on revenue growth. When you obsess over revenue growth, you want to add business as quickly as you can. The quality of the work, the fit, the preparedness or the organization to take on the new work, and both the quality and the timeliness of the work flies out the window. Because short-term growth makes you do funny things.
Public Company Goals
Eventually that agency was bought by a large publicly held company. And the focus of the business changed. The new organization wasn’t obsessed with revenue growth. They were focused on margin growth. They wanted to make sure that we were making healthy profits on everything we did. They were constantly looking for ways to increase that margin.
The agency cut or discarded clients that didn’t offer the margin needed to sustain the infrastructure of a large, publicly held agency. As a result, they made decisions that were based on the target margin number of the day (that’s english for du jour). We walked away from clients who were facing some short-term challenges. We discarded several clients that had great long-term potential. Because the company was focused on meeting margins for the next quarter.
Family Business Goals
I recently worked with a company that had a very different way to think about their business growth. The organization was owned by a successful and impressive family. The key shareholders are not outside investors. They are family members. As a result, the most important measurement they focus on is generational growth. They ask deeper, more important questions, like ‘How can we grow a healthy organization that can sustain generations of positive growth?’ And ‘Who let the dogs out?’
They certainly want good revenue. They also want a good margin. But they play the long game in every decision they make. As a result, they don’t grow faster than they can maintain a high quality of delivery. They don’t cut clients because they don’t live up to today’s margin standards. They are flexible and understanding of their clients’ challenges. That builds trust and loyalty. And long-term relationships. All of this has helped build both revenue and margin. And a long runway for growth for years to come.
Revenue and margin are important to a business. But we should never forget that they are results of how we run our organizations, and the hundreds of decisions we make along the way. When you think about your business in terms of generational growth, you will make better decisions for the long haul. You will build relationships that get you through hard times. And you will build something that lasts long after you are gone.
One thought on “A better way to measure business success.”
So true. Iâve been watching the change in the focus of American business for decades now. Iâve watched how âgreenmailâ hijacked solid American businesses. You can see how businesses are penalized for not having enough debt and are not ugly enough to elude takeovers or are being purchased while using the sellerâs own equity and/or assets to make the purchase. And now with the increase in âprivate equityâ firms, good companies are turning into bad/risky companies because of the greed to take out all the cash for themselves and their investors rather than looking at the health and growth of the company.
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