Value of growth

BY MATTHEW D. MOHR

Growing a business is generally very difficult, even during good times. Our country has struggled through a rough economy the last few years, and business growth has been especially hard and costly

Of the big publicly traded companies, Wall Street has seemed to favor those with sales growth above profitable enterprises even when the growth was unprofitable E-commerce giants earn paltry returns but promise gold at the end of the rainbow, yet their valuations are extremely high.

As a shareholder in a closely held enterprise, I was dismayed when the board of directors approved the purchase of a fast-growing web-based seller with a concentrated product offering to a handful of accounts for many millions of dollars After a short period the closely held enterprise lost accounts but is still trying to keep the web entity alive at a high cost. They can’t afford to take a loss or their balance sheet will become horrifying, so the entity stays alive with a fraction of the business In this case, the cost of growth has been a disaster (although the business management probably disagrees with this assessment).

A very aggressive business owner I know expressed frustration a few years ago when after growing his business year after year and eventually reaching employment of over 1,000 individuals, his profit after tax didn’t grow much at all His frustration with lack of profit growth even with increased sales eventually led him to sell the business.

Another recent business analysis I saw exposed a 300 percent growth in sales, but a corresponding 350 percent increase in costs Eventually the lines cross where the cost of growing volume exceeds the value of the growth.

Growing sales volume is fun and an indicator of success in the market place, but at what cost is the grow th worth? PB

Matthew D. Mohr CEO, Dacotah Paper Co mmohr@dacotahpaper.com