M53GrowStrategy & Growth· Module 3
Growth Economics
Revenue grows, but so do costs, cash needs and complexity. Profit doesn't follow.
- Grow
- Scale
- Finance
- Strategy
- ~5 min · Calculation
The business problem
Growth has costs that are easy to underestimate: working capital, new staff before revenue arrives, management overhead and complexity. Businesses that grow without modelling these effects often find themselves bigger but less profitable and short of cash.
Why it matters
Understanding the economics of growth lets you choose a growth rate the business can fund and manage, and spot when growth is destroying value.
What you will learn
- Model the cash needed to fund growth
- Understand step costs and capacity limits
- Recognise economies and diseconomies of scale
- Choose a sustainable growth rate
Core questions
- How much cash does each additional shilling of sales require?
- Where will capacity run out first: people, space, equipment, management?
- Which costs will step up as we grow?
- What growth rate can we fund from our own cash?
Work through the module
CaseWhat is happening?
Bakery, 40 people · Illustrative teaching case
A bakery wins supermarket contracts that would double volume. Modelling shows the growth needs a second oven, a night shift, a delivery van and months of extra working capital before the first payments arrive. The bakery negotiates staged volumes and a deposit, and secures asset finance before accepting.
DecisionWhat does the leader need to decide?
Accept the full growth now, or pace it to what the business can fund and operate?
FrameworkHow should they think about the problem?
The growth model
Revenue plan → working capital needed → capacity and step costs → management overhead → profit and cash by month. Compare the funding need with available cash and borrowing capacity.
ToolWhat can they use?
Growth modelCalculation
- Monthly revenue plan
- Working capital per unit of revenue
- Capacity limits and step costs
- Profit and cash by month
- Funding gap
ApplicationHow does it apply to their business?
Apply it to your own business:
- Model your next 12 months of planned growth
- Find the month of peak funding need
- Identify the first capacity constraint
ImplementationWhat changes?
What should change in the business:
- Set a growth pace that matches funding
- Arrange financing before it is needed
- Plan capacity increases ahead of demand
ReviewDid it work?
How to tell whether the change worked:
- Is actual cash tracking the model?
- Did capacity keep up with demand?
- Is margin holding as the business grows?
After this module you should be able to decide
Accept the full growth now, or pace it to what the business can fund and operate?
And leave with: A growth model showing the cash, capacity and profit effects of your plan.
Sequence · Strategy & Growth