Demystifying corporate growth? – maybe.

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I have pointed out before that management’s key purpose is to drive improved absolute performance [growing free cash flows in business cases], not hitting target ratios or benchmarks. McK-Q offers to demystify corporate growth, arguing that the ability to execute isn’t the key differentiator between companies that are growing quickly and slowly. They claim the critical thing is to compete not just in a fast-growing sector but also–at a more granular level–in a fast-growing part of that sector.

That seems to make sense, but think about it a moment – 50% growth of a $10m market is way less in absolute terms than 20% growth of a $100m market, and will continue to be so for many years, so what if the fast-growth sector’s potential is, say, only $80m? Sustained growth in this case would come from focusing on the larger, slower growth segment. I’ve also seen cases where apparently ‘low-growth’ sectors turn out to hide plenty of growth potential, which reminds me to point out that ‘market growth rate’ is almost never a truly independent variable – something ‘out there’ we need to deal with.

How a market develops is very often a function of what firms offer, as well as what customers want. And if you think about the impressive firms you know, most seem to have made their own opportunities, not sat back and tried to capture some share of what happens.

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