From the experts: Why growth isn’t everything

One might think that a business should always be on the quest for growth. But is growth always good?

According to business experts, growth shouldn’t be the pivotal objective. Rather, it should be one that aligns with an organisation’s vision. After all, there a plenty of small, successful and happy companies who don’t want the pressure and burden of having to go for growth all the time.

Here are more insights from nine of the best entrepreneurial minds.

“Growth is one of the most controversial and least understood strategic decisions,” says Jim Collins in his sweeping management book Beyond Entrepreneurship 2.0.

“Growth is not de facto good (or bad for that matter), and rapid growth should not automatically be viewed as a desirable aim. This may sound like heresy to those who believe that a good manager should strive for as much growth as possible. However, the decision to grow rapidly should not be a foregone conclusion and, indeed, there may be reasons not to grow rapidly.

“The question of growth should, as with all key decisions, tie back to the vision of the company,” writes Collins.

“Do you even want to be a big company? Do you want the downsides that rapid growth brings? Are there downsides to growth? Yes. For one thing, rapid growth can create a perilous cash flow situation. A common pattern is that a company shells out cash to purchase materials and labour in anticipation of rapid sales increases. It then turns those materials into products and sales but, as you know, cash doesn’t come in until months after the initial purchases. If the company doesn’t hit its forecasts, cash is tied up in inventory.”

“There are many other downsides to rapid growth,” writes Paul Jarvis in Company of One: Why Staying Small is the Next Big Thing for Business, including: 

• “Rapid growth can hide gross inefficiencies that don’t show up until the growth slows.
• “Rapid growth stretches a company’s infrastructure, often past the breaking point.
• “A rapid-growth strategy can pressure your salesforce to commit to prices that severely cut your margins.
• “There is tremendous human cost. The stress and strain on people during a rapid growth phase can be extreme.
• “Rapid growth leads to increased organizational complexity and reduced communications.
• “Large companies tend to be less fun, and rapid growth just brings that about sooner.
• “Rapid growth can quickly dilute the culture of your company, making it very difficult to develop management and reinforce your values.

“There’s a core assumption that growth is always good, is always unlimited, and is required for success. Anything else is pushed aside as not being a top priority … Consumer culture says the same thing — that more is always better. Through advertising, we’re sold a bill of goods that requires us to love the things we buy only until a newer or bigger version is put out for sale. Bigger houses, faster cars, more stuff to pack into our closets, garages, and then, inevitably, our storage lockers. But under this hype, this fetishisation of wanting more, are empty promises of happiness and fulfillment that never seem to come to fruition. Sometimes ‘enough’ or even less is all we need, since ‘more’ too often equates to more stress, more problems, and more responsibilities in both life and business.”

“Some ways to grow are easier than others,” writes innovation consultant Gino Chirio in Harvard Business Review.

“Cutting costs with new processes to improve margins is low-hanging fruit. It isn’t on the level of startup innovation; it’s just a more innovative way to do things. We don’t consider it part of the innovation budget because it doesn’t create value in the market, only incremental growth and continuous improvement.

“The easiest goal in the innovation pie is to maintain relevance to your core market through enhancements — with new features for your current offerings or the experiences that deliver them. It’s easy because it focuses on a market you already know and on products you already know how to deliver.”

“Growing over 100 stores in four years meant we had also started to show some cracks internally, including in our staff training and systems,” recalled Boost Juice founder Janine Allis about the state of the juice franchise back in 2004 in her book, The Secrets of My Success and the Story of Boost Juice – Juicy Bits and All, as reported by SmartCompany.

“We had gotten complacent, arrogant and reactive … We just were not attacking every part of the business — so that’s exactly what we did.”

“We broke each part of Boost into simple pieces. We began to get back on our toes and think proactively, reviewing and changing how we reported, cutting $2 million in expenses and building a strong profit centre mentality in the business.”

“The single greatest challenge any organization will face is … success,” according Simon Sinek in Start with Why.

“When the company is small, the founder will rely on his gut to make all the major decisions. From marketing to product, from strategy to tactics, hiring and firing, the decisions the founder makes will, if he trusts his gut, feel right. But as the organization grows, as it becomes more successful, it becomes physically impossible for one person to make every major decision. Not only must others be trusted and relied upon to make big decisions, but those people will also start making hiring choices. And slowly but surely, as the megaphone grows, the clarity of WHY starts to dilute. Whereas gut was the filter for early decisions, rational cases and empirical data often serve as the sole basis for later decisions.

“For all organizations that go through the split, they are no longer inspired by a cause greater than themselves. They simply come to work, manage systems and work to reach certain preset goals. There is no longer a cathedral to build. The passion is gone and inspiration is at a minimum. At that point, for most who show up every day what they do is just a job. If this is how the people on the inside feel, imagine how those on the outside feel. It is no wonder that manipulations start to dominate not only how the company sells its wares, but even how they retain employees. Bonuses, promotions and other enticements, even instilling fear in people, become the only way to hold on to talent. That’s hardly inspiring.”

“It’s less a question of whether or not you are growing too quickly and more a question of, ‘do we have the systems set up to manage and support our growth?’”, says business coach Debra Russell in Forbes. 

“Many businesses make the mistake of thinking they can wait to build systems until they need them. By the time you need the systems, it’s too late to build them! So check your systems and ask yourself, ‘what will break if we grow?’”

“Lots of young entrepreneurs think the key to building a company is to hire tons of people quickly. But bulking up too fast can be fatally risky,” writes Tasso Roumeliotis, founder and CEO of Location Labs, in FastCompany.

“Sustaining momentum is one thing, but trying to foment it yourself is another. In fact, the more slowly your team expands, the better. Your headcount should actually be your bottom budget item, and your top priority should be to spend as little as possible. It might sound counterintuitive, but if you set your startup’s course by these two principles, you’ll have more options and the best available people working towards them once you’re actually making money and weighing your next move … The point is that the employees drive a successful business. They share interests, preferences, and priorities. The best a startup can do after making their perfect hires is to allow room for all those things to shift into place, then get the hell out of the way. But you can’t make it happen–or make it happen faster. There’s no shortcut. Slow is good.”

“We started growing really quickly between June last year and February this year, like 30% every month [but] I did not anticipate the pressure that put on the cashflow,” said Frankie Layton, founder of sustainable cleaning product startup The Dirt Company, in early 2020 in this interview in SmartCompany.

“We had to buy some of our products with up to 12-week lead times, and because we hadn’t been around for more than a year, and had a slowish first six months where there wasn’t much business at all. Our suppliers had come to think of me as another person with a startup that probably wasn’t ever going to get it off the ground. So they weren’t in a hurry to put us on great trade deals; they weren’t going to give us product before we could pay for it. 

“We have this model where the first purchase comes at a very low margin for us, so we have to wait three months on average for the customer to come back and purchase their first profitable basket. I remember thinking, ‘I can’t believe this, we’ve just hit $30,000, $40,000, $50,000 and so on. Where’s the money going?’ There was progressively more money coming into the business, but there was no money to pay for anything. I really underestimated that cashflow lag and that growth is expensive.

“I remember we had a slower month in February this year, and I said to my business partner, ‘Oh, we’re not going to hit our growth target this month, but in other news, the bank account is looking really great’. It’s so counterintuitive. 

“I didn’t actually realise that we had to be earning around $70,000 a month to be able to cover costs. I didn’t have any notion of that. I thought I was going to start the business with $30,000, we’d buy stock and we could use some money from our first sales to buy our second stock. But you’re not buying for the next hundred customers, you’re buying for the projected thousand in three-months’ time. 

“We’ve bootstrapped the business. I think if you want to go the VC-funding route, you’re accepting that you’re on a certain course to grow and grow and grow. I’d prefer to be sustainable in our growth. We’re not slow-growing, but we’re not unicorn level, and we still spend such a small amount on marketing.

“I like that because it means we feel everything and we grow at a certain pace. I’ve got a business that I want to hold on to, that I want to use to create a great lifestyle for the people that are involved in it, and I want to stay true to this vision with the flexibility to execute however we feel.

“The key with any growth strategy is to be deliberate,” writes Rob Biederman, co-founder and CEO of Catalant, a company that connects companies to talent and knowledge, on entrepreneur.com. “Figure out the rate-limiting step in your growth, and pour as much fuel on the fire as possible. But for this to be beneficial, you need to take the following steps:

• “Establish a value proposition. For your business to sustain long-term growth, you must understand what sets it apart from the competition. Identify why customers come to you for a product or service. What makes you relevant, differentiated and credible? Use your answer to explain to other consumers why they should do business with you. 
• “Identify your ideal customer. You got into business to solve a problem for a certain audience. Who is that audience? Is that audience your ideal customer? If not, who are you serving? Nail down your ideal customer, and revert back to this audience as you adjust business to stimulate growth.
• “Define your key indicators. Changes must be measurable. If you’re unable to measure a change, you have no way of knowing whether it’s effective. Identify which key indicators affect the growth of your business, then dedicate time and money to those areas. Also, A/B test properly — making changes over time and comparing historical and current results isn’t valid.
• “Verify your revenue streams. What are your current revenue streams? What revenue streams could you add to make your business more profitable? Once you identify the potential for new revenue streams, ask yourself if they’re sustainable in the long run. Some great ideas or cool products don’t necessarily have revenue streams attached. Be careful to isolate and understand the difference.
• “Look to your competition. No matter your industry, your competition is likely excelling at something that your company is struggling with. Look toward similar businesses that are growing in new, unique ways to inform your growth strategy. 
• “Focus on your strengths. Sometimes, focusing on your strengths — rather than trying to improve your weaknesses — can help you establish growth strategies. Reorient the playing field to suit your strengths, and build upon them to grow your business.
• “Invest in talent. Your employees have direct contact with your customers, so you need to hire people who are motivated and inspired by your company’s value proposition. Be cheap with office furniture, marketing budgets and holiday parties. Hire few employees, but pay them a ton. The best ones will usually stick around if you need to cut back their compensation during a slow period.”