On 17 May 2008, Portsmouth beat Cardiff City at Wembley to win the FA Cup, their first FA Cup victory in 69 years.

They had also finished eighth in the Premier League and qualified for European football.

Their squad contained established international players including Sol Campbell, David James, Lassana Diarra, Sulley Muntari and Nwankwo Kanu.

From the outside, Portsmouth appeared to have successfully grown into their ambitions.

They had the players.

They had the profile.

They had the revenue.

And now they had the trophy to prove it.

Except there was another scoreboard that told a very different story.

The Other Scoreboard

In the financial year ending May 2008, Portsmouth’s turnover increased by 75% to more than £70 million.

That, in isolation, is extraordinary growth.

However, alongside it:

• The wage bill had increased to almost £55 million
• Wages were consuming 78% of turnover
• The club recorded a loss of approximately £17 million
• Debts had reached nearly £58 million

Portsmouth were unquestionably growing, but several things were growing at the same time:

• Their revenue
• Their ambition
• Their reputation
• Their wage commitments
• Their debts
• Their dependency on continued financial support

The FA Cup victory was real.

The growth was real.

However, less than two years later, Portsmouth became the first Premier League club to enter administration.

Nothing about the subsequent financial collapse diminishes what the players achieved on the pitch or what the day meant to Portsmouth supporters.

But the trophy also created a powerful impression that the strategy was working.

The success had not created the underlying financial weaknesses.

It had made an unsustainable model look successful.

Growth Is Not One Thing

That is one of the dangers of growth.

When the visible results are positive, it becomes very easy to assume that the decisions behind them must also have been correct.

• A major contract is won
• Revenue reaches a record level
• The team expands
• The business enters a new market
• The founder receives wider recognition

Each milestone feels like evidence that the business is moving in the right direction.

And it might be.

However, it is also possible for a business to achieve exactly what it set out to achieve while becoming weaker in the process.

• Revenue can grow while contribution falls
• The team can grow while productivity declines
• The customer base can grow while dependency increases
• The company can become more visible while cash becomes less predictable
• The business can become larger while the founder moves further away from the life they wanted it to create

The growth is real.

It is the definition of success that may be incomplete.

When I ask founders about their plans, one ambition appears more frequently than any other: “We want to grow.”

The obvious next question is: “How much?”

However, I increasingly believe there is a more important question that should come first:

What exactly are you trying to grow?

Do you want to grow:

• Revenue
• Gross contribution
• Profitability
• Cash generation
• Recurring revenue
• Management capability
• Market share
• Long-term enterprise value
• Founder independence

These are not the same objective.

They can sometimes support each other.

However, they can also pull the business in very different directions.

For example, the business may have achieved its revenue target while moving further away from its underlying strategic goals.

That does not necessarily make the growth wrong, but it does mean the decision cannot be judged from revenue alone.

What Is the Growth Supposed to Achieve?

A useful growth objective should describe more than the number you want to make bigger.

It should explain what the growth is intended to change.

Perhaps the objective is to increase recurring revenue so the business becomes more predictable.

Perhaps it is to strengthen a particular service line so the business becomes more valuable.

Perhaps it is to reduce dependency on one large customer.

All are legitimate forms of growth, but each requires different strategies, different investments and different measures of success.

Without that clarity, turnover tends to become the default target.

Not necessarily because it is the most important outcome, but because it is the easiest one to see.

Three Questions Before You Grow

Before deciding how to grow, I think every founder should be able to answer three questions.

1. What do we want to grow?

Be precise when answering.

“More revenue” is not precise enough.

Which revenue?

From which services?

From which customers?

At what contribution?

With what degree of predictability?

And why will that growth make the business better?

The more clearly you can define the intended outcome, the easier it becomes to distinguish genuine progress from activity.

2. What must we commit to achieve it?

Every growth plan requires the business to commit something before the result is guaranteed.

That might include:

• Cash
• Recruitment time and expense
• Management time and attention
• Technology investment
• Additional premises
• New skills
• Marketing investment
• Delivery capacity

Some of those commitments will be flexible.

Others will be difficult or expensive to reverse.

A credible growth plan must therefore explain not only the expected return, but what the business must commit before the return is realised.

3. What must we protect?

This is the question that is most often overlooked.

What are you unwilling to weaken in pursuit of growth?

It might be:

• Your minimum cash reserve
• A target level of gross contribution
• Service quality
• Employee wellbeing
• Customer diversification
• Your independence
• The culture of the company
• The time available for your family and life outside work.

Growth involves trade-offs, but those trade-offs should be conscious.

If you do not decide what must be protected, it becomes very easy to sacrifice something important to the business, or to you personally, in pursuit of a visible headline number.

Growing Through The Nuvem9

Last month, I introduced The Nuvem9 as a way of answering the question:

How healthy is your business?

Better visibility only becomes valuable when it changes the quality of the decisions that follow.

Growth provides a perfect example.

A growth decision should be considered across all three layers of business health.

• Today’s Control: What will the decision do to cash, current commitments and immediate financial visibility? Can the business fund what it is about to commit?
• Tomorrow’s Scale: Will the growth generate sufficient contribution? Is the demand credible? Can the business build the capacity and capability required to deliver it?
• Future Resilience: Will the resulting business be more predictable, valuable and independent? Or will it become more reliant on one customer, one employee, one source of funding or the founder?

The purpose is not to make every measure green before the business acts. It is to prevent one exciting headline from hiding deterioration somewhere else.

Portsmouth’s FA Cup win in 2008 turned their sporting scoreboard green.

The club’s revenue was growing, but the wider picture was considerably less healthy.

Define Growth Before You Pursue It

Think about the most significant growth objective currently being discussed inside your business.

Then try completing these three statements:

1. We want to grow __________ because __________.
2. To achieve it, we will need to commit __________.
3. And we will not allow __________ to deteriorate in the process.

If the first sentence is unclear, you do not yet know what the growth is for.

If the second is unclear, you may not understand the real investment required.

If the third is unclear, you have not established what the growth decision must protect.

Those gaps matter.

Once a business begins hiring, investing or accepting additional commitments, it becomes harder to step back and decide what the growth was originally meant to achieve.

A Bigger Business or a Better One?

Portsmouth’s FA Cup victory will always be part of the club’s history, an extraordinary achievement.

However, winning the trophy did not prove that the organisation beneath the team was financially sustainable.

In business, visible success can create the same false sense of certainty.

A larger customer.

A bigger team.

A record revenue month.

A rapidly expanding pipeline.

All can be evidence of progress.

None automatically proves that the business is becoming more profitable, more resilient, more valuable or more capable of operating without the founder.

Before asking how quickly your business can grow, ask something more fundamental:

What are you actually trying to grow?

A growth target that does not define what should improve, and what must be protected, is simply permission to become bigger.

And bigger is not always better.

Next week, I will look at what happens after the objective has been defined.

Most growth plans require the business to start spending long before the resulting income reaches the bank.

Which creates the next question:

Who pays for growth before the customer does?