Thinking Managers

Robert Heller of considers whether successful profitable companies should drive for growth, or whether staying the size they are and being contented with their lot should suffice?

Why Grow?

Why should you go for growth? Few ask this question, let alone answer it. Organisations take it for granted that growth is good and non-growth is bad. Yet a highly agreeable situation can be imagined: growthless but not seriously declining, secure and seriously profitable.

Imagine that you own a debt-free, private business – My Goldmine, Ltd – that earns an effortless, steady, inflation-proofed £1 million in after-tax profits, representing a much higher return on capital than could be provided by any safe financial investment. Other companies are expanding, but so what? You and those family members who work or share in the business are still drawing handsome incomes. So why bother to set your business strategy towards growth?

Well, you could answer that earning £2 million a year is twice as agreeable as earning £1 million – other things, such as the strain of running the business, being equal. In fact, effort will be needed to double the earnings. Unpalatable risks could also be involved. These two obstacles of effort and risk could be the reason why so many privately owned businesses rest content with My Goldmine, Ltd. However, there are no guarantees. The relatively tiny lodes can be easily destroyed by the avalanche of events, and thousands are, on an annual basis.

The problem in the My Goldmine argument is that is presents a dichotomy that doesn't exist.

In a survey of printing firms, subjects were divided into companies pursuing either continuity, or profits, or growth. The paradox was that those going for continuity were far less likely to survive than those seeking either profits or growth. The best strategy is to achieve continuity by pursuing profitable growth, not just growth.

Growth represents change. The conventional ways that growth is measured and defined can mislead and misrepresent. These yardsticks are usually financial: above all, expanded revenues and/or higher profits. Such an emphasis is understandable in a public company. If the financial profile doesn't change, there won't be a rise in the share price (in theory).

There was a time when investors bought shares for dividend income. The cult of equity superseded that notion decades ago. Investors are after capital gains. That’s another financial definition of growth. It translates into a 'shareholder value' increase. But the value of a share is founded on the genuine value of the underlying business. In the long term, this financial outcome is ultimately derived from non-financial performance. There are some demanding questions My Goldmine has to answer:

Is there a strong and improving customer franchise? Is the management competent, up-to-date and up to standard? Are the operational efficiencies rising continuously? Is there investment and planning well for the future? Is the company stronger than the competition on every count that matters to customers?

The list could go on. However, all the questions revolve round another: is My Goldmine geared to change?

Even if 'you' are the sole owner of the company, others are dependent on it for their lives and livelihood, and 'you' depend on them for their essential contributions to its value. Indeed, your people are in fact a major part of that value. Are you using that valuable asset well enough and increasing its worth? Without the full contribution of others, the plan is far less likely to be either good or well executed.

You should see your company as everybody's goldmine – and that makes it far more likely to start growing real, organic nuggets for everyone. Momentum is a essential element in the mix, and the key reason why growth is both a noble and necessary pursuit.

About the author
Robert Heller is one of the world’s best selling authors on business management.

  Robert Heller