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Grow or Die.. is that true?

uphillAll of us have heard the mantra, “you’re either growing or dying.”  But, is that always true?

I have a good friend, a very successful businessman, who recently turned down a big order he’d been offered.  When I asked “why,” he said  an order of that size would completely change the culture of his business, and he wasn’t going to allow it.

This individual has started two high technology businesses.  One grew into a large public company.  After leaving there, he formed another smaller but highly successful company, which he wants to keep relatively small.  Having tasted the world of running a large company, he’s determined that it’s not what he wants from life.

Another friend started a successful business from his home, and has purposely not hired anyone else, despite the fact that he could do more business if he did.

Both of these gentlemen have clear visions of what they want their businesses to be, are successful and respected people in their fields, and have built impressive businesses.  So, are they dying by not growing?

I used to pay close attention to the famous “Inc 500” listed companies.  But, I noticed something odd; many of the companies listed, were bankrupt or out of business shortly afterwards.  Keep in mind, that the Inc 500 is a listing of the most rapidly growing privately held businesses in the United States.

So how, could a rapidly growing business go broke?  The answer..  very easily.

Edward D. Hess, a professor at the University of Virginia’s Darden Graduate School of Business says that the idea of “grow or die” is just not supported by research.  In fact, he says that growth can kill a business.

Professor Hess is not against growth, but says that growth should be approached as a well considered decision, not as an automatic assumption.

Rapid growth can overwhelm processes, people, and controls.  Hess recommends staged growth, where you accelerate, and then let off the pedal while the company catches up.   This is especially true for small businesses that lack a safety net to survive unanticipated problems.

Early in my career, I worked for a rapidly growing company where we were actually told NOT to accept any additional customers.   Think about that for a moment, do NOT accept new customers!

I was not in management at that time, but the company had expanded so rapidly, that we were doing a terrible job servicing the customers we had. So much so, that our reputation in the market was being damaged.  Additionally, employees were so overworked and stressed that turnover rates were horrible . The owners decided to take bold action to pause the growth.

The company survived , and became quite large and successful.

Hess says there are four methods of business growth for a small company.  You can improve, innovate, scale, or acquire.  Innovation and acquisitions are relatively high risk methods.

He suggests scaling, which simply means doing more of what you’re already doing.  For any of you that run businesses, you’re already thinking that’s easier said than done.  And, you’re right.

It means that you must improve your processes, hire the right people, and train them well. All of which takes considerable energy and time.

I always tell people to play the “what if we’re successful” game.  You want to double your business; so visualize what the business will look like  if you’re successful.   It probably means you need more people, right?  Do you enjoy hiring and managing people?  Better think that through.

It may mean incurring debt to finance the growth; are you comfortable with that?  It could well mean that the vacations you’re taking, the golf you enjoy, and the relaxed atmosphere at the office will all go  away.   You up for that?

Larger companies require that controls be pushed away from just one person.  Can you delegate authority to others?  Really?

I’m not discouraging growth.  I’ve been fortunate enough to both work for, and own a rapidly growing business.  What I do suggest, is that you take a hard look at what you really want from life, and make growth a rational decision, not an assumption.

Speaking of growth, the Harvard Business Review in 1983 published “The Five Stages of Business Growth,” which I’ve found helpful.

The stages are:

  1. Existence
  2. Survival
  3. Success
  4. Take Off
  5. Resource Maturity

The Existence Stage is just that.  “Hey, we’re in business.” The problem you face is finding customers and delivering.  The big question is: “can we get enough customers to be viable?”

The strategy is to.. well, exist.  Not much more than that.  Anyone that’s been through founding a small business understands this stage.  Some make it out, some do not.

The Survival Stage is where the business has proven that it’s viable. It has enough customers and does good enough work to keep them.  The key problem has shifted from just existing, to  keeping revenues and expenses in order.  One question asked during this phase is “can we generate enough cash flow to stay in business, and finance growth to a more comfortable stage?”   Some businesses  remain in this stage their entire life.  These are  the Mom and Pop type stores.

The Success stage is more comfortable, but even here the owner has some strategic decisions to make.  Do they use the company’s success as a platform to greater growth, or simply maintain it in a comfortable level?  I’ve seen people do both successfully.

The Take OFF stage is the high growth stage.  The problems are maintaining enough cash to run and grow, and for some people, this means taking on considerable debt.  Many people find that very uncomfortable.

This is also where some hard decisions come up regarding leadership and management.  What got you here, isn’t necessarily going to get you higher.  Many founders find themselves pushed out by creditors at this stage, or face the hard reality and remove themselves from management.

Companies either make it higher, or fall back to either the success or survival stage.  Life is risky here.

The final Resource Maturity level is the big company level.  This is where my friend found himself, and he didn’t like it.  His experience is not uncommon.

One of the challenges at this level is to maintain an entrepreneurial spirit, while consolidating gains, and adding personnel and leadership levels.

So, what’s the bottom line… grow or not?

The good news is- you get to decide.  Just make it a rational decision, not an automatic assumption.


Eddie Mayfield