28 Sep Is business growth a necessity?
Hell Yes! .. Absolutely not. These are the kind of answers I always get when I discuss such topic with fellow marketers, or the businesses I consult, which, by the way, don’t differ much from those I stumbled upon while researching the topic for more understanding. And, whether your answer was one of the early mentioned, or something else, believe me, you’re going to reconsider by the end of this article. Because taking a strategic business growth decision, goes way beyond a confident, unbacked quick answer.
Well, here goes the dilemma. If growth was a necessity then why companies like, for instance, Crumbs Bake Shop fell apart after scaling? And if it wasn’t, then why an ex-social media mighty like Friendster has miserably failed when it did not scale?
Let’s start with defining growth. Shall we?
According to the dictionary: Growth is the process of increasing in size. and for many businesses growth is a bunch of spiking lines on a graph, since they see it as a direct equivalent to profitability. And if you asked any of those belonging to the “Hell Yes!” party, why do you feel the urge to grow? the answer would be; “Because I should!”. And guess what? from some perspective they might be right!
In another definition; Growth is the process of increasing in amount, Value, or importance.
And let’s agree on one thing here, one of the growth’s main reasons is that it allows you to maximise your value proposition through your increased capabilities. But, Of course, it’s easier said than done. Wondering why? Cause after all, it’s a “Process”. And you could scale, but fail to be efficient. So, profitability is not always a direct result of scaling.
You know what, let’s go a bit practical and reflect on a case.
Let’s assume that we have that lovely small shop, opposite side of the university’s gate. It sells those delicious cupcakes to the university’ students as a main target segment. The shop is working fine and making good profit. The owner is happy, but not very satisfied. He felt the urge to grow. Like buying a bigger shop, more workers, could even go further and consider opening other shops in different spots covering all the university’s gates, or why not to even extend to other universities? sounds logical and ambitious. Doesn’t it?
Let me tell you what’s going to happen, since I can predict the future, or can I?
This business will grow, the owner will make good revenue, not necessarily good profit, and not for long. Then it will all fall apart. “What!” I hear you say.
Ok, the thing is, with slight changes, this was the same exact case of Crumbs Bake Shop. Wondering what went wrong? Well, you can read the whole case, alongside other cases here. Or, No worries, I won’t leave you without an answer anyway.
Growth alone was not the main reason behind the Crumbs Bake Shop’ failure, business evolution was. The company kept bombarding its customer-base with the same product. Growth didn’t work well in this case as it caused a market saturation, forced the company to cannibalise its own profitable segment, and the growth was up line, not bottom line. Clear now? Hopefully.
Growth is not imperative, Evolution is!
The point is, growth is very important, but not imperative. More important than growth is the pace of it, in case you made your decision to scale strategically from the beginning. Going for a premature or fast growth might hurt your business badly, and going slow might bring disastrous consequences.
You don’t always need to grow through scaling or any other growth strategy, but you definitely need to evolve. That would help you own your current market, appeal to new markets while scaling and strengthening your position.
Growth vs Scale
Surfacing the internet to get more you will get confused by many articles that try actually to save you by clearing the Growth vs Scale water. While in my humble opinion is not the case at all.
Let me cut this short for you, in one line.
“Strategically, scale is one of the growth’ strategies. Period.”
You go for growth through scaling, growth through acquisition, growth through innovation, or growth through market entry, etc. In other words, you can’t put “vs” between those two words.
But, why all that babble about growth vs scale?
Well, you really need to concentrate here cause this is when it gets really tricky.
When it comes to Tech, things slightly change, since they put growth and scale this way; “Growth is reflected by increases in revenue and resources at the same rate. Scale is the increase of revenue with no change in cost to the business.”
Actually I only agree with this statement when it comes to Tech/Software projects, but with all do respect, it’s not valid when it comes to a non-tech business. If the essence of growth is about doing more of what you do best, which means for a normal business to scale, it will need to replicate its operation forces. For instance, a consulting company like McKinsey & Company will need to add a new consultant/Resource to take care of the new account it adds to its profile, but In software and tech you don’t necessarily need to do that. Because, Yes, you guessed it, you can scale without a necessary growth in your resources. You develop the software, or your app and sell as many copies/subscriptions as you can. The growth in resources is almost unnoticed.
Anyway let’s get back to the beef and answer the question. Cause the problem is that, businesses confused Growth with Scale and forgot about the essential part which is Evolution.
Why business evolution is a necessity?
Let’s answer this;
Why did yahoo fall? Cause it failed to evolve entering the mobile world, plus other reasons.
Why did MySpace the mighty fall? Cause it failed to evolve focusing and innovating.
Why did Nokia fall? Cause it failed to evolve.
Why did Blackberry fall? Cause it failed to evolve.
Why might Apple fall? Cause it’s not evolving.
All above are examples of companies that scaled and still scaling but they couldn’t evolve. Growth was not the answer and it would never be for every case. But Evolution is.
What does it mean to evolve? It means to build a solid product that can sustain change, to innovate, to have a robust consistent strategy that will always keep you miles ahead, to be open to market/customer/trends change and to have the team/capabilities to act accordingly. That what makes business evolution a necessity, not growth.