'Fake' and 'Selfish' Growth types are just not sustainable, nor acceptable anymore. Let's ReImagine Business 'Growth' post-pandemic.
This article explores why it's important to examine the different types of growth we see in the market and decide as CEOs, Founders, and Business Leaders, what kind of Growth we aspire to have.
In summary:
1) Two types of fake growth; Growth for Growth sake and Investor fueled Growth
(Wework saga is a prime example)
2) Selfish, self-centred Growth
(The current AMP saga is an example )
The world has changed. Management practices for the industrial age will no longer work in the connection age.
As the world emerges from the pandemic chaos and shakes itself off, let's use this time of reset as an opportunity to redefine how we grow.
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24th AUG 2020
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Business ‘growth’ as it’s come to be known will need to be re-imagined in the post-COVID economy.
While the majority of businesses will need to focus on survival, the new economic conditions provide others with the opportunity to double down on growth.
But first let’s look at some of the problems that are related to " Business" growth and how we can begin to reimagine more sustainable metrics in the COVID economy.
The two types of Fake Growth
a) Growth for Growth’s sake
Growth for Growth’s sake is seen when companies push more products and services for the sake of growth instead of solving a real problem and meeting the actual needs of customers.Â
This is a classic case of the tail wagging the dog.
This is when companies feel compelled to push financial numbers higher to satisfy the image and demands for the market and investors.
This is when pushy sales tactics, promotions and price discounts are used to drive traction, which doesn’t last, nor retain customers.
This often results in driving growth for growth’s sake, even when it’s not profitable or has no real business fundamentals.Â
It’s also evident when financial manoeuvres are used to engineer growth figures on paper or acquisitions for growth’s sake, when no real synergies or strategic alignments exist.
b) Investor Fueled Growth
The second type of fake growth, Investor Fueled Growth, can be seen when startups drive fake growth with truckloads of investor money to drive short term customer acquisition, with no real value that retains them.
This is growth with no real commercial viability, where the customers are acquired by cheap products/services funded by shareholders. It is unsustainable.
This type of growth props up a business momentarily, but does not solve a real problem, satisfy a real need, and is not commercially viable, having no unit economic model. For more, read VC Fred Wilson blog, Negative Gross Margins, about unicorns going extinct.
Ask yourself, do we really need more food delivery startups, or could the capital be deployed to an area with more pressing problems?
While it might be possible to sell a sexy vision, forward-looking statements, and massive ‘purpose’ propositions to amateur investors, they need to align with the understanding, capacity, competence, and capability to deliver on it. For more, watch Prof Scott Galloway’s hilarious analysis of Unicorn mission statements guaranteed laughs here!
Overpromising and under delivering becomes like a house of cards when the growth capital being pumped into the company dwarfs any actual revenue or value that the company can ever hope to feasibly return.Â
Complicated and sophisticated valuation techniques are a mask to cover laziness and sloppiness.
Another driver is the availability of cheap capital and the frenzied FOMO impact of amateur investors, dying to be part of the bandwagon.Â
Everyone is an investor nowadays, but it still remains an odds game.
This should not be confused with Reid Hoffman’s book ‘Blitzscaling,’ where he mentions that the key difference between ‘blitzscaling’ vs the normal scaling process is that you need to have investors that will continue to pump in money, even when the company is not operationally efficient or profitable.Â
However, founders need to understand that this only applies to a product or business that is creating an entirely new market category, or building a platform business – think billion-dollar plays like Uber, Airbnb and the like.
This type of business is a rare winner takes all, where immediate worldwide scale is important, and speed is a key differentiator to gain competitive advantages and build network effects.Â
The reality is – much to the eventual disappointment of many founders- not ALL products, ideas and services fall under such a categorisation. Most founders have a romantic vision of their startup and the majority are led astray by misguided advisors and mentors.
The WeWork saga is the poster child example of playing the valuation game when the business model is shaky.
With its ‘unicorn’ halo, it was able to create a temporary illusion.
Investors were driven by the psychology of sunk cost, with the only way to gain – play along and act like it fundamentally deserved that unicorn status.WeWork continued to drive valuation with more growth via investment, followed by offloading shares and equity to undiscerning retail investors with the promise of future profits. Meanwhile the founders and early investors cashed out.Â
It was ultimately an office space service, a traditional brick and mortar business, but given the same status as a pure technology play. Its founders extolled its scalability, tagging onto true tech startups that can actually transcend space barriers and create network effects, and in turn multiply values and exponential growth potential.
WeWork and similar growth stories are akin to putting lipstick and sunglasses on a pig and calling her Audrey Hepburn!
This should not be confused with the funding of deep technology startups/companies that require consistent investment to create a breakthrough solution that will leapfrog an entire industry, or to real innovation that creates an entirely new category and marketplace ecosystem.
An example is Tesla with its first electric car, or SpaceX for the first commercial space travel, or deep R&D type business models like pharmaceuticals that have intellectual property and or a regulatory protection mechanism for market share, to earn back initial substantive investments. Another example will be building a platform business that has multi-side and need to invest to get the network effects to kick in and to make the market.Â
2) Selfish, Self Centred Growth
Selfish Growth has the mantra of maximising profit at the expense of everything.
It can be seen in the customary pure shareholder return type capitalism, which can be harmful to other stakeholders like the environment, society, and employees.
The mechanical function of a company is to produce a profit to reinvest into growth, but the purpose is to be defined by the founders and leaders.
There is now a move among more evolved companies to include their impact on broader society as part of their organisational goals and values.
These companies seek to enrich and improve the lives of communities, in addition to generating returns for the investors.
The recent decision by BlackRock – the world’s largest asset manager at $US7.4 trillion – to include environmental, social and governance metrics in its investment strategies, signals the shift away from such growth.Â
Last year CEOs from some of the world’s largest corporations like Apple, JP Morgan Chase, and Walmart announced in a joint Statement on the Purpose of a Corporation, that companies should work to benefit employees, the environment and suppliers.
They recognise that self-centred growth is like a cancer cell that grows by eating up goodness in the body, and that this type of bottom line has an unhealthy impact.
Moreover, talented and informed workers are no longer willing to share their gifts and work beyond 9-5 just to make shareholders rich, they need meaning and some level of emotional engagement.
Even if they are not saving the forest, they want to at least do no harm.Â
Most people spend 80 percent of their waking lives at work, and with COVID, more people are either rebalancing and valuing the time at home, or valuing how important work is to provide a source of engagement and livelihood.Â
Companies that lean towards cut throat, and at times toxic environments, often value profits over people and can have the tendency to use the ‘carrot’ and the ‘stick’ method as a means to drive productivity.
Such growth is usually hard work, energy-draining, and full of negative stress – where people tiptoe in fear, only giving 50 percent, and can’t wait to leave once they find a better option. What happened at AMP is an example where toxic culture was tolerated to protect high performing executive Boe Pahari and the likes, and yet recent events are highlighting that such behaviors are no longer acceptable with shareholder revolting, and ultimately driving board members' resignations.
It’s non-inclusive growth where not all stakeholders benefit, it’s the kind of growth that leaves a bad taste in your mouth and a trail of dead bodies behind.
Imagining a more Enduring type of Growth
Selfish and fake growth are both unsustainable. Such growth is usually based on short term thinking, short cuts and quick temporary wins – at the expense of long term Enduring Growth.
It’s the need for speed, for speed’s sake, it’s applying misguided mechanistic practices over understanding first principles, it’s missing the forest for the trees.
It’s also lazy because healthy and sustainable growth is harder to achieve, it requires courage to go against the grain and discard outdated methods even if they were once successful.
‘An opportunity to redefine how we grow.’
Companies can start by realising true value and growth by providing for customers’ real needs and providing solutions to tangible problems at a price that one can consistently afford.
The world has changed. Management practices for the industrial age will no longer work in the new connection age.
As the world emerges from the pandemic chaos and shakes itself off, let’s use this time of reset as an opportunity to redefine how we grow.Â
The new market landscape is likely to reward robust and credible growth that is nourishing and enduring.Â
Let’s reimagine a new type of growth that can help pave the path for a different and meaningful future for humanity.