Their goal was to find “sustained growth champions”, which they defined as companies that added head count each year from 2007 – 2012.
Less than 1.5% of the companies qualified.
The magazine selected a sub-sample of those to help them find the managerial DNA of success, and called it The Build 100.
According to Inc., companies grow in different ways. They might, for example:
- Have several years of expansion before their growth rate slows and then declines.
- Grow sporadically either with the economy or industry, or as a result of the business owner taking, or missing, opportunities.
- Grow quickly and then plateau.
The Build 100 companies didn’t, however, do any of those things. They grew slowly and steadily.
The conclusion being that incremental growth, repeated over time, achieves better results than short – or long – bursts of growth.
And that finding corresponds closely with what Jim Collins and Morten Hansen found when they were researching “Great By Choice”.
Collins and Morten describe how John Brown, the CEO of Stryker, set a goal of 20% growth in net income – no more, no less – every year.
Was he successful?
A $ invested in Stryker from its IPO in 1979 until 2002, multiplied more than 350 times. The return on a $ invested in a comparable competitor fell well below that.
Let’s go back to the Inc. project. They studied companies over a 20-year period and found 3 very interesting things.
- The faster a company grew in one period the less likely it was to grow again – and the more likely it was to fail. (Why? Perhaps because they stretched their processes, resources and everything else too far and either ‘broke’ them or had to do some serious repair work.
- Growth over several periods had no influence on the odds of future survival or growth.
- The more frequently a company added people (head count) year over year, the more likely it was to grow again.
I find that last point particularly interesting. Remember 3 of the 5 things the Build 100 have in common are related to employees. Is the timely addition of people who “fit” a key to fuelling steady growth?
What do you think?
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Jim Stewart is the founding Partner at ProfitPATH. He has been working with business owners for over 16 years to increase profits and improve the value of their companies. LinkedIn