More market share, more sales, increased profit are the common targets.
But why is it like that? Why is that not enough that has been achieved? Why must it always be bigger?
1 Growth as self-preservation
Companies exist to make a profit, so they can continue to exist tomorrow. They can only do that if they compete better than their competitors – this implies: be better, faster, bigger, more profitable than the competitors. Like any living being a company has a self-preservation instinct – it must grow and adapt to survive.
“In this country you have to run as fast as you can to stay in the same place. And if you want to go somewhere else, then you must run at least twice as fast.”
(Lewis Carroll, Alice in Wonderland)
2 Growth driving increased profitability
In principle growth leads to economies of scale and smoothens the learning curve thus delivering more profitability. If a company sells 1,000 steel widgets per year, the company needs to buy the steel, have a factory with a machine and a operator.
The profit from the sale of 1,000 steel widgets must cover the cost for the purchase of the steel, the factory, the machine, the operator and some margin for the owner.
If the company is able to sell all 2,000 steel widgets, the costs are distributed over 2,000 instead of 1,000 steel widgets – assuming no additional unit costs for the steel for another 1,000 steel widgets and the machine can also produce 2,000 steel widgets.
The same applies to the learning curve – the more the company performs a particular activity, the easier and more efficient it becomes the more routine is embedded and the company can thus work more productively and profitably.
3 The market share of today determines the market position of tomorrow
Especially in a growing market, it is crucial how quickly the company can grow. Growing slower than the competitors, its market share may decline – growing faster than the market, the market share rises.
Once the market growth stagnates or decreases, it may ignite a ‘cut-throat’ competition (like we can observe with the petrol companies such as BP, Shell). The companies that have grown in the past most have the largest market share and thus in the best position to assert themselves in the cut-throat competition.
4 Growth as a threat to small and medium sized companies
For some companies fast, rapid growth may be seen as a threat – a owner-managed small or medium-sized company may choose not to grow as the owner does not want to be a CEO of larger, more international company.
In summary, growth is not a bad thing – almost inevitable if a company wants to survive. However, a company must remain viable and most importantly manageable.Please share this post