Real Growth Re-Imagined!
- Josephine Too
- Mar 2, 2024
- 6 min read
Updated: Jun 30
Real Growth vs Fake Growth: Not all Growths are Equal
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 this article:
Types of fake growth
What causes fake growth?
Selfish, self-centred Growth
Why fake growth is unsustainable
How to achieve real, sustainable growth
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24th AUG 2020
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Business ‘growth’, as it has 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.
Types of Fake Growth
In the realm of fake growth, two prominent types emerge: growth for growth's sake and investor fuelled 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. This occurs when companies feel compelled to push financial numbers higher to satisfy the image and demands for the market and investors. This occurs 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. It’s also evident when financial manoeuvres are used to engineer growth figures on paper or acquisitions take place just for growth’s sake, when no real synergies or strategic alignments exist.
b) Investor Fuelled Growth
Investor fuelled 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.
This type of growth is unsustainable because it props up a business momentarily, but does not solve a real problem or satisfy a real need, and is not commercially viable, having no unit economic model.
For more, read VC Fred Wilson's blog, Negative Gross Margins, about unicorns going extinct.
What causes fake growth?
As a founder, 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!
Over-promising 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. 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.
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. This only applies to a product or business that is creating an entirely new market category, or building a platform business – think billion-dollar players like Uber, Airbnb and the likes. 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. 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. Investors were driven by the psychology of sunk costs, with the only way to gain being to 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.
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 with 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 would be building a platform business that is multi-sided and needs investments to get the network effects to kick in and to make the market.
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 of capitalism, which can be harmful to other stakeholders like the environment, society, and employees. It’s non-inclusive growth where not all stakeholders benefit, and one that leaves a bad taste in your mouth and a trail of dead bodies behind.
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. Companies that often value profits over people can have the tendency to use the ‘carrot and 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 give 50% effort, 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 behaviour is no longer acceptable, with shareholders revolting and ultimately driving board members' resignations.
Why fake growth is unsustainable
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 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.
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. 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.
How to achieve real, sustainable growth
Companies can start realising their 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.
More evolved companies have started to include their impact on broader society as part of their organisational goals and values. They seek to enrich and improve the lives of communities, in addition to generating returns for the investors. 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. 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 unsustainable growth.
The new market landscape is likely to reward robust and credible growth that is nourishing and enduring.
Let’s reimagine a new type of growth that can help pave the path for a different and meaningful future for humanity.
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