All companies need to grow profitably in order to succeed. But only 11% of companies manage to grow profits and revenues by 5.5% or more over a 10-year period, and earn back their cost of capital. That’s a sobering statistic for company leaders, directors, employees and investors.
A new report from Bain & Company, ‘Barriers and Pathways to Sustainable Growth: Harnessing the Power of the Founder’s Mentality’, finds that 85 percent of the barriers to profitable growth for the average company are internal and manageable – not external and uncontrollable, such as unfairly advantaged competitors, government regulations, inaccessible technologies and market conditions that do not offer growth opportunities.
For the largest companies, this number rises to 94 percent. Inability to overcome these internal factors will cause two out of every three companies to stall and lose touch with customers, growth and profitability, be acquired or disappear within the next 15 years.
The primary internal barriers to growth cited by executives included:
• revenues growing faster than talent,
• increasing distance from the customer with growth,
• complexity of decision making slowing the company down,
• inability to choose focus and direction, and
• difficulty mobilising resources.
All of these challenges increase with company size and complexity, and the authors refer to this as the “paradox of growth”: Growth creates complexity, and complexity is the silent killer of profitable growth. Think about Woolworths over the last 3 years!
These are the results of a five-year study across 8,000 global companies and discussions with executives in 40 countries about the key barriers that companies face today in the pursuit of sustained and profitable growth.
About 80% of the major swings in market value for companies occur as a result of decisions made and actions taken during three types of predictable crises that companies encounter (sometimes multiple times) during the course of their life cycle.
These are;
1. the crises of overload, which typically occurs during a rapid scale-up period (five to ten times);
2. stall-out, when the growth engine in a mature company loses momentum; and
3. free fall, when a company’s business model no longer works and performance declines sharply.
The research was led by Chris Zook and James Allen, who are the co-founders of Bain’s Strategy Practice and authors of several bestselling books, including their most recent, 'The Founder’s Mentality' (Harvard Business Press, June 2016).
