How much is it about growth, of what?

Is it all just about growth?

It is a sad truth. I constantly have startup founders throw the number of people they have in their company in my face as a benchmark of success.  Perhaps the dream of going public some day blurs the merits of their smallness and the greater client focus that it affords.  It is funny because these companies have 5x the resources in both people and capital yet have very little to show for it. It is not how many people you have,  it is the impact those people have and what they are able to accomplish. It shouldn’t matter if that is a team of 40 or a team of 4. I know quite a few companies have done a great job of showing that it doesn’t take a lot of people or a huge amount of money to be successful. We should all thank them for being a shiny beacon of light in an oversized and over-funded world.

When is it good to chase growth?  How much does growth matter?  Hell, is it sustainable to keep growing for growth’s sake?

Wouldn’t you like to be a small giant that’s a great company?  How about accent on customer focus and employee friendliness?

If it were up to me, I’d most likely be working with teams no bigger than, say, 20 people. I’ve found that number as the ideal balance between a small but solid and enjoyable team, and when it exceeds, everything that used to be cool about working at a given place may likely start sucking.

Earlier I had a consulting client, a technology startup. When I was hired, they were a mere 8 people on board. Now they’re nearing the seventy-something employee mark, and while the people on charge have done a rather stellar job of preserving much of the laid-back attitude that defines them, they lost a lot of startup values in the process of scaling. Holding an impromptu discussion over a project in the kitchen is no big deal with a team of 5 people. Not so with 50. The more people they got on board, the less of a grip they had on everything, and the more likely the implementation of rather annoying control systems. Goes without saying that, should I be taking care of a startup of my own in the future, would rather be in charge of a small team.  Now it’s just me and most services outsourced (am a great fan of *buy* than `build’) and I’ve never been happier. As long as business is good and allows me to put food on the table and then some, I should be good to go and be happy.

Public companies have too much pressure from investors to keep growing, but there’s not enough emphasis on whether it’s good for customers (and hence for the business), employees and other stakeholders.

Apple has grown by developing good products that people want, broadening their offerings within narrow categories and using their products to cross-sell the rest of their lineup. iPods became popular because they were good.  People who were happy with iPods decided to buy iBooks and iMacs. Company grew. Investors that bought Apple stock in 2001 and 2003 were up by over 15x.

Compare that to many companies that try to grow through M&A when they can’t grow organically, and have all sorts of issues with merging cultures, branding, overcoming resentful customers, etc. Most mergers suck. Employees get laid off or even leave, customers face worse service and higher costs, savings aren’t fully realized because the integration costs so much, etc. and ultimately the investors lose their shirt.

So before you take the next M&A bet, try this test in addition to all that you normally do – just see how much better-off is the customer post merger. Does he have to spend a Rupee more or less for buying the same unit and quality stuff?  As a corollary, do you pay a Rupee more or less for buying more stuff (enabled by scale) from your vendors? If it’s more, don’t waste your time. 

Investment bankers would kill me for saying this, I know 🙂



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