Edward Hess teaches business administration at the University of Virginia's Darden School of Business. Before joining the UVA faculty, he spent more than 30 years in the business world, beginning his career at Atlantic Richfield Corporation. He was also a senior executive at Warburg Paribas Becker, Boettcher & Company, the Robert M. Bass Group and Arthur Andersen. He is the author of nine books, over 40 practitioner articles, and over 48 Darden cases dealing with growth systems, managing growth and growth strategies. His most recent book "Smart Growth" was named a Top 25 business book for business owners in 2010 by Inc. Magazine and was awarded the Wachovia Award for Research Excellence.
Edward Hess: Our view of growth, what I call the US growth mental model has really grown up over the last 50 years in this country coming after World War II and a period of great productivity, great growth, rising living standards, and the United States becoming really the dominant economy in the world. All of that plus our cultural history of entrepreneurialism, individualism has fueled a group of beliefs about growth in our society.
Those beliefs are all growth is good, bigger is always better, businesses must grow or die, and in the public markets, public companies must grow continuously in a linear fashion with ever-increasing quarterly returns. Unfortunately, those four beliefs are not based in any science, any empirical data or business reality. They are at best half truths and some are pure fiction.
1. Growth Can Stress a Business:
Too much growth can be bad. In order to grow a small business it takes more people, more processes, more controls. Growth has to be managed. Growth has to be paced. You need processes for growth. You need controls for growth. You need people for growth, and growing a small business is managing all of that so you don’t lose control of the business.
2. Bigger Is Not Always Better:
Bigger is not always better. The bigger an entity the more complex it is to manage. The bigger you become, it puts you into different competitive spaces, and therefore you have bigger and better competition.
3. Improve or Die (or How to Outrun the Bear)
To stay in business you don’t have to grow. What you have to do is constantly improve your customer value proposition better than the competition. Business is no different than basically that old joke about the two guys walking in the woods who come across the bear and one guy looks at the other guy and says, “We got to outrun the bear.” And the other guy says, “No, we don’t.” “I just have to outrun you.” That is business. You just have to out compete the competition and deliver more value and continuously improve to the customer.
4. Growth Is Not a Continuous Linear Function
Companies that grow in a continuous manner for four years or more are rare, are the exception. The longer the term, if you go out 7 years or 10 years it is very rare. Growth is not a continuous, linear, mechanistic, deterministic function, and so the research shows that what we believe about growth is basically completely wrong.
Directed / Produced by
Jonathan Fowler & Elizabeth Rodd