Going for growth

Jan 13 2011 by Robert Heller Print This Article

Why grow? This is a question that few ask, let alone answer. It's taken for granted in organisations that growth is good and non-growth is bad. Yet you can easily imagine a situation - growthless but not seriously declining, secure and seriously profitable - that is highly agreeable.

Suppose 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 any safe financial investment could provide.

Other firms are expanding in the same area, true. But so what? You and those family members who work or share in the business draw handsome incomes from this lucrative cynosure. Why set your business strategy towards growth?

One answer is that earning £2 million a year is twice as agreeable as earning £1 million – other things, like the strain of running the business, being equal. But effort will be required to double the earnings. There could also be unpalatable risks. These two obstacles – effort and risk – explain why so many privately owned businesses rest content with My Goldmine, Ltd.

Yet there are no guarantees. These relatively tiny lodes can be easily destroyed by the avalanche of events, and thousands are, every year.

The fault in the My Goldmine argument is that is assumes a dichotomy that doesn't exist.

A survey of printing firms divided its subjects into companies pursuing either continuity, or profits, or growth. The paradox was that the continuity fans were far less likely to survive than those seeking either profits or growth. The best strategy is to achieve continuity by pursuing, not growth, but profitable growth.

For growth, read change. The conventional ways of defining and measuring growth mislead and misrepresent. These yardsticks are mostly financial: above all, expanded revenues and/or higher profits. You can understand such an emphasis in a public company. If its financial profile doesn't change, the share price (in theory) won't rise.

Time was when investors bought shares for dividend income. That notion was superseded decades ago by the cult of the equity. Investors want capital gains. That's another financial definition of growth. It translates into an increase in 'shareholder value'.

The value of a share, however, is founded on the genuine value of the underlying business. Over the long term, this financial outcome ultimately derives from non-financial performance. My Goldmine has to answer some demanding questions:

Does the company have a strong and improving customer franchise? Is the management able, up-to-date and up to the mark? Are the operational efficiencies continuously rising? Is the company investing and planning well for the future? Is it stronger than the competition on every count that matters to customers?

The list could be longer. But all the questions revolve round another. Is the company geared to change?

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

Look upon your company as everybody's goldmine, and that makes it far more likely to start growing real, organic nuggets for you (and them). Momentum is a vital element in the mix, and the key reason why growth is a noble and necessary pursuit.

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About The Author

Robert Heller
Robert Heller

Robert Heller, who died aged 80 in August 2012, was Britain's most renowned and best-selling author on business management. Author of more than 50 books, he was the founding editor of Management Today and the Global Future Forum. About his latest title, The Fusion Manager, Sir John Harvey-Jones wrote: "The future lies with the thinking manager, and the thinking manager must read this book".