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  • 06 November 2014
  • Eric Michaels

Why you should focus on growth instead of revenue

As an entrepreneur with a start-up in its early stages, it's tempting to consider revenue and profitability to be the major indicators of success. After all, a business making money is bound to appeal to investors and fuel the path to a larger market share, right? While this technique is still the go-to formula for some businesses, focusing on the growth of market share is a better goal for entrepreneurs in a less crowded space. Here is the case for profits taking a back seat to growth.

Market share first, cash second

Before it became a publicly traded mega-company, Facebook provided a free platform for users to engage each other socially. Strategic investments by the social network built the biggest consumer base possible and managed to hold a market under its control without stressing profits. That system worked so well, the company has earned a market capitalization of over $200 billion and is currently ranked the 29th most valuable brand in the world. Facebook is now cashing in on its huge investment in the form of market share. Twitter kept a similar focus in its first five years as a company.

Focusing on the quality of your product and winning the lasting loyalty of your market are the best ways to earn trust in your brand.

You may not be launching Facebook or Twitter, but stressing growth of your consumer base is an approach to consider. Focusing on the quality of your product and winning the lasting loyalty of your market are the best ways to earn trust in your brand. Once you have a consumer base that prizes your product or service above the competition's, you can decide on the right model to translate market share into profits.

Keys to focus on growth

There are instances when focusing primarily on profits may be appropriate for a business. George Deeb of Red Rocket Ventures notes how new businesses in a crowded marketplace would do well to focus on revenues and profits. For example, a new pizzeria in New York City has dozens of competitors within a single square mile; therefore, that pizzeria is justified in making profitability a priority. On the other hand, if you opened a one-of-a-kind restaurant featuring Hawaiian cuisine in the same area, building a following could create customers for life because there is no competition.

To this point, Deeb notes how important it is to carve out your market share quickly in a space where there's little competition. Down the line, the dominant consumer base will be the key to monetization. As you look for investors to keep growing your market share, make sure this strategy is clear in your financing pitch. Putting profitability on the back burner is one thing; ignoring profits is another.

Avoiding the exodus

Companies like Myspace and Friendster once had huge followings but ultimately lost their market share to competitors. Here are ways to retain your consumer base as market conditions shift:

  • Build lasting loyalty. Make sure you understand and deliver the unique commodity that makes your customers respond to your brand. Learning how to engage them on social media is an excellent way to discover customers' priorities and how to provide value.
  • Make customers your evangelists. Consumers who attract interest and business for your brand on social media are known as brand advocates or social influencers. Cultivating the trust and commitment of these advocates allows your business to rely on unpaid consumers to build your market share. If you're so inclined, compensation in the form of exposure or discounts is a good way to make sure these evangelists continue to work on your brand's behalf.
  • Maintain energy levels on your team. To stay ahead of the changing market, your company needs to have a core of high-energy individuals in leadership and other key positions. Prize enthusiasm and commitment above all else as you look to grow your market share during your earliest stages. And though you may have developed strong relationships with employees, it's better to replace them with energetic staff rather than sacrificing your company mission.
  • Act swiftly to cut losses. When you see movement away from your company, act quickly to make sure the exodus does not continue. Find out the reason behind the sudden loss of customers so you can determine ways to win them back or replace them. Without a strong market share, your attempt to put profits on the back burner could prove fatal.

Business is no longer all about profits. Focusing on growth is a strategy that has worked for some of the world's top companies. If your start-up fits this model, be confident about putting profits second.

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