It is a truth universally acknowledged that a company in possession of a good fortune must want a better one. 

No topic attracts more attention from senior leaders and investors than steady business growth. It’s challenging despite the double-digit promise you often hear. However, some companies grow steadily in both good and bad times. Is it sheer luck? Are there ways to make it happen in your business? We believe so. 

Grow Your Company, Slowly & Steadily – Pal’s Sudden Service

Pal’s has been hailed in the business world and media for its small size (for the fast food industry), profitable growth, and low employee turnover rate. The company boasts a revenue of $2,500 per square foot, while the average number for a burger restaurant is $650. What’s the secret?

No Rush to Scale

Fast food chains are all about scaling; demand is essentially insatiable. But not at Pal’s Sudden Service. Fred “Pal” Barger founded the company in 1956. It only added a third restaurant in 1985. Since then, the company hasn’t opened more than one new location per year. (Wendy’s has hundreds of locations slated to open in 2024 alone.) It has 31 locations as of April 2023 in Tennessee and Virginia, all drive-thru only. 

Pal’s only opens a new location after they’ve trained a manager. Demands alone don’t dictate business growth strategies.

Lean Manufacturing Principles

Pal’s Sudden Service’s operation follows lean manufacturing principles, championed by Toyota in the 1950s. It remained the same for 80 years. 

As a result, Pal’s has one order error for every 3,600 orders, while the industry average is one in  15. A low error rate reduces food waste, speeds up the ordering process, and makes customers happy. 

In 2001, Pal’s won the Malcolm Baldrige National Quality Award, the first restaurant company to receive it.

What if you use lean principles but still see faulty products piling up while the right ones are nowhere to be found? It’s time to examine the reason and improve. (We can help.)

Talent Development

Pal’s adopts the owner-operator business model. All Pal’s store managers are owner-operators, so their compensation is tied to the profit of their restaurant. 

Employee selection and development are at the heart of Pal’s. The company has a rigorous screening process. New hires undergo 120 hours of training and receive certifications before working, and they also recertify periodically to maintain their skill levels.

The company opens a new location whenever an employee has been fully trained and ready to function as a manager (usually within three years). Importantly: this decision is not dictated by market demand or a targeted financial goal.

The company gives all managers a “master reading list” and enrolls them in an internal leadership development program. Every other Monday, current CEO Thom Crosby, who joined the company in 1981, invites five managers to discuss their thoughts on the books. Mentorship is ingrained in the company culture. The payoff is the low employee turnover rate (one-third the industry average).

Steady Business Growth – Focus on Three things

Companies with steady business growth hold on to the same things.

Rita McGrath –a business growth veteran– conducted research in the 2010s on publicly traded companies with a market capitalization of at least $1 billion. During ten years (1999-2009), only 10 of 2,347 companies grew their net income by 5% in all ten years, and only five grew both revenues and net income every year.

McGrath then interviewed high-level leadership to uncover the “secrets” to this success. Amid the volatilities of the time (dotcom bubble burst, 9/11), these companies’ priorities remained the same:

• Strategy/Leveraging core capabilities
• Talent development
• Culture building

Effective Strategy

A strategy (a set of initiatives) helps a company gain competitive advantages in the market. Value creation, especially for your customers, is the core. That’s not something you change frequently as long as you’ve worked out an effective way to do it.

Atmos Energy has been using a strategy for 20 years. A former CEO spelled it out in 1997: leveraging efficiency in its regulated business and driving growth in its unregulated businesses. 

Talent Development

All ten companies on McGrath’s list promote their high-level executives internally. They focus on employee development. Infosys has a state-of-the-art employee training facility: Infosys Global Education Center. 

They’re slow to downsize. They still need to lay employees off, but the percentage is much smaller than average. For example, Cognizant announced a 1% reduction of its workforce in 2023, while Pixar has planned a 20% layoff in 2024.

Experiment

Stability doesn’t mean stagnation. Companies with steady business growth adapt to situations quickly. They pursue new opportunities, they just make small bets first. 

HDFC, India’s largest private sector bank by assets, enabled Mastercard holders to use its ATMs worldwide in 1998 through a partnership with Cirrus. In 2001, HDFC became the first Indian bank to launch an international Visa debit card. HDFC’s key competitors didn’t explore the regular debit card until 2000.

 

In business, nothing sounds sweeter to stakeholders than steady growth. It’s a balance between exploiting demand and building internal capacities, and it costs resources. So, next time, before you roll out a growth strategy, ensure that your company is ready for it.

What if you need a fresh pair of eyes for more insight? There are experts out there, Roos Advisors, for example. We can help.