It’s no wonder. According the the 2011 SHIFT index, competitive intensity has doubled during the last 40 years and the rate at which (big) companies lost their leadership positions has more than doubled. Despite these harsh realities, most SMEs are still optimistic about the future. 72% of these same business owners expect to bring in more revenue in 2013 than 2012.
A quick glance at the Inc 500 / 5000 reminds us that thousands of companies have experienced hypergrowth over the last three years. So what is their secret? Ah, if there was a perfect formula, we’d all be rich.
Like most things worth pursuing in life, running a successful business is a marathon pursuit. Entrepreneurs are driven by making things better, creating new value, and doing what other people can’t, or won’t. Product and service development, marketing and sales, operations, and finding and keeping the right people all bring varied complexities in a constantly evolving context.
While there are no magic bullets, we can absolutely learn from studying history. Data and research from the past gives us meaningful historical perspective. But as you’ve undoubtedly heard and experienced, past performance is not necessarily indicative of future results. Grounding our forward looking projections through an intelligent lens helps us to make better decisions based on the landscape ahead, and not simply the roads that have already been navigated.
In this post, we’re going to focus on examining what growth looks like, identifying pillars that we should be strengthening to support the growth of our organizations.
DISRUPTION AS A PROPELLER OF RAPID GROWTH
Clayton Christensen, selected recently as the top management thinker in the world by Thinkers50, highlights how disruptive innovation vastly changes markets and fuels significant growth for those who choose to disrupt. Disruptive innovators basically “transform a product that was previously so complicated and expensive that a small population had access to that which a much larger group of people can have access.”
We’ve seen this type of transformation take place repeatedly. A prime example is how the multi-million dollar mainframe, has progressed from an era where only a few large governments, mega corporations, and huge universities had access to them. Mainframes were disrupted by the PC manufacturers, which were disrupted by the laptop, then the tablet, then the smart phone, which has essentially made computing power accessible to almost everyone.
We see this in the current era of cloud computing. We see this amongst automakers. Look around at many of the high growth organizations around you, and chances are they are providing access of something useful to larger sets of people for a much lower cost.
While rapid growth seems sexy and magical, it’s sustainable growth that leads to long term success and perhaps is the better of the two. Your preference as a business owner is akin to whether you’re more interested in being the tortoise or the hare.
The best companies are able to sustain their growth over the long run. In 1981, a company called SAS Institute showed up at number 15 on the very first Inc. 500. The company was 5 years old and growing at about 100% per year. In early 2013, they announced record revenue for the 37th consecutive year. Dr. James Goodnight, CEO and Founder, has some incredibly sage advice for how to duplicate his success.
“We have a very simple philosophy: Try to make sure the percentage revenue growth is higher than the percentage expense growth. It’s a magic formula.”
Dr. Goodnight does offer another clue that may indeed be a bit more helpful:
“Really, you just have to give people a great place to work.”
SAS regularly shows up as one of the best places to work in the world, which drives increased productivity, and a significantly lower employee turnover rate than most organizations.
The fact that Dr. Goodnight is still involved also highlights another factor that has led to increased returns and favor from investors over the years. Founder led companies typically do better.
A fascinating study by Gary Kunkle titled “Building Scale and sustaining growth: The Surprising Drivers of Job Creation” found 2 primary key insights:
- “The more frequently a firm grew in the past, the more likely it is to survive and grow in the future”
- “The faster a company grew in a period, the less likely it is to grow again in the future. In fact, it’s also more likely to die”
These findings highlight the importance of consistent and measurable growth. SAS Institute provides the best manifestation of these principles that I’m aware of.