Beyond the Balance Sheet: What Really Creates Growth?

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The Recurring Debate

The most pervasive question asked in boardrooms, management meetings, and planning sessions is undoubtedly, “Will we hit our revenue goals?” (or some version of that question).

This can also be the source of heated discussions. It can be a cyclical and quite exhausting conversation when you get into a room full of executives who are all certain they know the answer as to why sales aren't hitting their number, why marketing is not generating enough leads, or why customer churn is increasing.?

This is for good reason. Organic growth is unanimously positive in all regards for a business. It improves short-term performance. It improves employee morale. It has a massive impact on the valuation of the company. It generates inertia and momentum among customers, investors, industry stakeholders, analysts, and employees. By all measures, growth is what owners, CEO’s, and management teams are all working to generate.?

But if this is so critical to success, why is there such a persistent lack of consensus on achieving it effectively?

The “science of growth” is not very well understood by CEOs, growth leaders, and management teams.

Companies (and their executive team), even though they’d lead themselves to believe so, do not fully understand the complex chain of events that cascade throughout their own businesses and how that leads to revenue. I don’t mean the outcome which manifests on financial statements. They get that part. I am talking about the events that not only lead to consistent revenue growth, but the processes, systems, data, and people that enable it. This is primarily because the commercial assets that generate growth are hard to measure, manage, and report since they are largely “intangible”.

Too often, at the highest level of leadership in organizations, growth is treated like a disconnected, functionally driven art form rather than the interdisciplinary, data-driven science that it should be. This makes it very difficult to build a management consensus on the “math” of how a company grows and the capabilities that can create the greatest value. They recognize the strategic importance of these elements, yet often they don't have a financially sound method for assessing and controlling these key value drivers, nor do they possess a concrete set of business strategies to capitalize on them in the market.

The way that companies operate their growth functions is fragmented and siloed.

The way organizations operate their growth functions- independently of one another- has resulted in operational silos across sales, marketing, customer success, finance, and product development teams. This means each function is trying to do its own individual job, with its own individual sets of objectives, and make progress on activities that hopefully impact customers and revenue positively. Departmental silos that operate with distinct objectives, KPIs and metrics that are independent of each other result in fragmented, subpar optimization of the many parts that make up the entire revenue cycle. Even when growth does happen under this scenario, growth is celebrated only for the fact that it happened, since the people responsible for generating it usually cannot explain why.

This misalignment leads to revenue and margin losses due to leaks and poor handoffs in the customer journey. Additionally, it results in customer-facing teams and the operations, systems, data, and processes that back them failing to share crucial information, leads, and data throughout the lead-to-cash cycle. This disconnect often leaves the finance department in the dark about many activities that influence revenue forecasts. Hence, why predicting future revenue and cash flow is so difficult.

If this discipline is so crucial, why is it so misunderstood and difficult to implement consistently? Moreover, why does it spark disagreements among investors, board members, and leadership teams? The core of the issue is the undervaluation of "intangible" commercial assets, which are the fundamental drivers of growth.

The Unseen Drivers of Growth: Intangible Assets

The first thing to recognize is that the entire foundation for organizational growth and subsequent value creation is built upon things that can’t be quantified numerically. These are called intangible assets and they don’t show up on a balance sheet. These are things like brand value, human capital, customer preference, organizational information sharing, etc. Since they don’t show up on a balance sheet or management report, these assets are hard to describe and difficult to account for. This is why it is so difficult for companies to monetize them.

It’s fairly straightforward to model the impact of opening a new factory or the financial benefits of owning a fleet of vehicles versus leasing them. However, it is difficult to model the impact of improvements in go-to-market effectiveness and customer experience because the assets that support these initiatives are difficult to value, hard to manage, and difficult to build. But more businesses could generate more revenue at better margins if they treated these assets like financial assets which is exactly what they are. Additionally, CEOs and leadership teams could also fund smarter long-term growth investments if they spent time understanding the relationship and causal events that lead to growth.

Unfortunately, most businesses do not evaluate and understand these types of assets, despite the fact that most investments in “intangible assets” far exceed the investments in hard assets. These investments also disproportionately create more value for the organization. The reason organizations don’t measure, manage, and understand these growth levers is that they don’t have to. There is no executive, CEO, CXO, or otherwise,? that is required to put a financial value on any of these things because there is no regulation, or standards that have been established that says they have to. It’s no surprise that the companies do not recognize, measure, and manage these assets and monetize them effectively. Viewed this way, most companies have a class of assets that are underperforming. The crack in the foundation is large in most businesses, but nothing is done to correct it.

What Can CEOs, Growth Leaders, and Management Teams Do?

All mid-sized companies have latent economic potential, and discovering the specific assets and capabilities where this potential resides represents a material catalyst to achieving sustainable organic revenue growth and thus, value creation. Evaluating and identifying the specific assets, capabilities, and causal chain of events that lead to revenue growth is widely accepted as a fundamental principle to building enduring companies. Companies should care about this for the critical fact that it is a source of sustained competitive advantage because these assets are very difficult for competitors to mimic. To unlock their value depends on knowing baseline performance and the economic potential of improvement – as measured by revenues and valuation.?

Taking a Holistic View of The Assets That Create Growth

While stakeholders see the opportunity, many companies struggle to identify, quantify, prioritize, and execute the most impactful value-creation drivers. The lack of a holistic plan and alignment prevents companies from being able to monetize their operational assets and capabilities - in addition to causing revenue and margin leakage. This is why the discipline of revenue operations has become so critical in growing a business in 2024. By leveraging tools like a Quality of Revenue assessment, which quantifies, benchmarks, and operationalizes a company's intangible assets, investors, CEOs, and growth leaders can make smarter growth bets because they understand the underlying drivers that create value for their business.

This holistic approach not only clarifies the path to sustainable and scalable growth but also aligns the entire organization toward common goals, thereby reducing internal conflicts and enhancing overall performance. Companies that effectively measure, manage, and monetize their intangible assets are better positioned to innovate, compete, and succeed in an increasingly complex marketplace.

Until next week!