Over the last eight years, I’ve worked with a lot of different companies as a consultant. One question I’ve asked every company is, ‘what goals do you have?’ and I cannot think of a single one that didn’t mention growth.
I have nothing against growth, but I wonder if it’s always the right goal. Year on year revenue growth has become the default metric of success for most companies but is it possible to continue to grow indefinitely?
To try and find an answer, I turned to Geoffrey West’s book, Scale. It’s a fantastic book, that explains how the universal laws of scaling apply to everything from animals, cities and indeed companies.
West, explains that companies growth is fuelled by profit, the difference between total income and expenditure. Profit generally scales linearly with the number of employees, and mathematically, linear scaling leads to exponential growth. Just what most companies are striving for.
While exponential growth sounds good, it’s a significant challenge. The overall economy is also expanding exponentially, so individual companies need to grow at the same rate as the economy or faster to register real growth.
And here lies the issue. Young companies tend to shoot out the gate and grow rapidly before slowing down as they mature. But as they age and growth slows, they begin to rely on the growth of the market to sustain themselves. If you factor out the growth of the market, most mature companies (over $10 million in yearly revenue) are not growing. They are just floating on the foam of overall market growth.
This is dangerous territory. If these companies cannot keep pace with the growth of the market, they are in danger of drowning. This is why innovation is so crucial for mature organisations. Entering new markets and solving new customer problems isn’t optional. It’s essential if you are to weather the storm, keep your head above water and keep up with market growth.