Continuing with the growth theme – at some point in time, the business will be seen as a mature one, where it seems the object is to fight over 5% of the market.  Does that mean the business stops growing? or does it mean there is still room to grow? According to the book Every Business is a Growth Business by Ram Charan & Noel Tichy, Times Business, NY, 1998. the authors believe there is room to grow in every business. They believe if your business is not growing sustainably and profitability, it is dying. The four principles to growing every business are: 1. believe and act on the idea there is no such thing as a mature business. 2. the company’s growth is profitable, sustainable, and capital efficient. 3. companies grow because growth is in the corporate mindset created by the companies leaders. and 4. the mindset starts at the top but must reach the bottom or is at all levels.

Why is this important is one critical aspect of judging a company is the company’s leaders to deliver a profitable sustainable growth.

The crucial points from this book are:

1. There is no such thing as a mature business.  What is your water?

How does it start? the first aspect is looking at the pond you are in, how do you define it? A wonderful example is Coca-Cola. In the 1990’s, the company had a 35% market share which was profitable. However the President Roberto Goizueta asked a question of its executives. What is the average per capita daily consumption of fluids by the world’s 4 billion people? The answer is 64 ounces. What is the daily consumption of Coke? The answer was less than 2 ounces. The competition was not Pepsi, but water. If the competition is water, Coke is a small fish in a big pond, and there were more things that can be done. Coke began its transformation and has continually raised its dividend.

2. Not all growth is good. Good growth is sustainable, profitable and capital efficient. There has been many companies that have increased their revenues because that is what leadership were paying for. In the most recent case of mortgage backed securities, the more that were packaged and sold, the more the financial institutions made. The problem was the quality of the mortgages rapidly decreased and there was no money to repay the mortgages. However before that happen financial institutions were booking profits on revenues and trying to get the mortgages off their books. Unfortunately most ended holding great amounts of mortgage back securities which were written off or not profitable.

3. Growth is a mentality created by a company’s leadership. Leaders must believe and infect the rest of the organization. Change will be tough, but change can be wonderful. In the book, Citibank changed its focus to be the banker of choice or do multiple transactions for its target market. To do this reorganization and the ability to bring in expertise to help their clients and gain the ability to do multiple transactions took time and effort to do, Once it started the pond grew in size.

4. Balanced growth is the key to prosperity in the 21st century. In the end your customers come to you to fill a need. If you focus of solving needs, products and services will come. The four paths are A existing customers with existing needs; B new customers with existing needs; C new customers with new needs and D existing customers with new needs. The challenge is to evolve with your customers and satisfy their continuing needs as the world around them changes.

5. Growing is less risky than not growing. If you are constantly cost cutting, being defensive you will not be satisfying the people in the company or the customers and both will begin to look and go elsewhere.

Linking to dividend paying stocks, often companies that pay dividends are in businesses that have been defined as mature for there are fewer competitors in what is considered an existing pie. The competition is to gain a slightly bigger piece of the pie, but can the pie or pond be enlarged? As a shareholder you want to know what does the leadership of the company think about the pie and its opportunities. Then other decisions can be made.

There are more questions than answers, till the next time – to raising questions